Stakeholders fault new tax reforms as FG insists airlines must pay VAT

The aviation sector has expressed strong reservations about the New Tax Act 2025, describing it as inconsistent with international treaties, counterproductive to Nigeria’s aviation growth, and retrogressive for the struggling industry.

This concern was raised during a business webinar jointly organized by Aviation & Allied Business and the Federal Inland Revenue Service (FIRS), themed “Nigeria Tax Act (2025) & The Aviation Industry.”

Samson Fatokun, Regional Manager of the International Air Transport Association (IATA), noted that the new taxation regime contradicts binding commitments already signed by Nigeria.

He cited the December 14, 2024, ECOWAS Supplementary Act, signed by President Bola Tinubu, which exempts air passenger and cargo transport from taxation effective January 1, 2026. Fatokun warned that Nigeria’s internal legislation should align with regional and international agreements to avoid contradictions.

Fatokun emphasized that aviation is a global business governed by treaties on taxation, finance, and economics. He argued that airlines already face numerous levies in the form of charges, taxes, and fees, and piling on the New Tax Act risks further weakening an industry that operates in a highly competitive international environment.

Contradictions and Double Taxation

Mustapha, Nigeria’s first aviation lawyer, warned that the New Tax Act contradicts existing legal provisions and could result in double taxation.

He pointed to sections 22 and 23 of the Civil Aviation Act 2022, which exempt the aviation sector from taxation on income.

“If applied, it would amount to double taxation. The Federal Inland Revenue has to reconsider because these provisions conflict with one another. This needs urgent legal clarification.”

Private Sector Concerns

Pathfinder’s Nkechi Onyenso expressed concern about passenger affordability, warning that VAT could worsen already low traffic numbers. “Sometimes, I’m not speaking for the airlines, but because I do work with some of them, I do see that they have very low passengers as it is now. I’m just wondering the impact of the introduction of VAT on airline tickets, how much further it will impact passenger flow.”

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Onyenso noted that airlines already face unavoidable operating costs but rely solely on passenger revenues to remain afloat. “Airlines already have standard costs they must pay, but revenue comes only from passengers. If VAT is added, it will impact fares and potentially reduce traffic further.”

Government Response

Nkechi Umegakwe, Assistant Director, Tax Policy and Advisory, Nigeria Revenue Services, insisted that the law is part of wider reforms to align Nigeria with global best practices. She admitted that the New Tax Act might raise costs but argued that VAT was not unique to aviation and is borne by consumers, not suppliers. “VAT is a consumption tax. Even the government pays VAT. Airlines are merely agents of collection.”

The divide between government and stakeholders reflects deeper issues in Nigeria’s aviation sector. Airlines continue to struggle with high operating costs, foreign exchange pressures, and declining passenger traffic.

Industry voices insist that the New Tax Act risks worsening these challenges by pushing ticket prices higher and discouraging air travel. As the aviation industry braces for the implementation of the New Tax Act 2025, stakeholders are calling for urgent dialogue to avoid policies that could further damage an already fragile sector.