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As FG exempts commercial tickets from VAT, travellers ask airlines for tax breakdown

Air passengers have called on airlines to properly breakdown taxes charged on air tickets to understand the components that sum up the total cost of air fares.

This call is coming after the Federal Government announced exemption of commercial flight tickets from Value-Added Tax (VAT) effective from January 1, 2021.

This implies that air passengers may no longer pay as much as they were paying for air tickets, as ticket fares may not necessarily reduce except the airlines are transparent in giving proper breakdown, which should include VAT removal.

Seyi Adewale, CEO, Mainstream Cargo Limited, informs BusinessDay that the Federal Government’s final consideration to begin in part to limit levies and taxes that are of concern to the sector and airline operators in particular is a welcome development.

Adewale explains that it proves in part that the Buhari’s administration is becoming responsive to the needs of the sector, and the citizens can only encourage them to do more because there are still areas that need their kind and good intervention.

Passengers’ hope and expectations now is for airlines to also reduce the burden transferred to the Nigerian passenger, he notes, saying, “If airlines don’t show responsiveness and empathise with their customers/ passengers by reducing local airfares, they will lose the goodwill they have garnered from the Nigerian public.”

A passenger, who is also an industry stakeholder who craved anonymity, wonders why passengers do not even get information about the charges on tickets.

“I just looked at some of my tickets and charges and taxes are not broken down. They are broken down on international flights but not domestic,” she states to BusinessDay.

For instance, a Dana Air Lagos – Owerri December 2020 ticket has a skeletal breakdown on taxes as follows: Base fare: N59,280, Surcharges – N12,000, Fuel Surcharge Taxes – N3,564, Ticket Sales Charge Taxes -N5,346, Flight Service Charge – N6,000. Total amount is N86,190.

For an Air Peace Lagos – Owerri June 2020 ticket, the taxes are broken down as follows: Currency price – N9,400.00, sales tax: N600.00, airport service charge – N2,000.00, fuel charges N15,500.00. Total is N27,500.00.

For an Arik Air Lagos – Owerri July 2020 ticket, the taxes are broken down as follows: Ticket Fare -N8,051.00, Taxes are further broken down as: N2,000.00, N1,153.00, N604.00, Surcharges – N15,000.00, N500.00, making a total of N27,308.00.

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In these tickets sold out before the announcement by the government on VAT removal, none of the airline included VAT in the breakdown but passengers are always made to pay 7.5 percent VAT of the value of the ticket.

Taiwo Oyedele, West Africa tax leader, PwC Nigeria, notes on twitter via his twitter handle @taiwoyedele that “Effective 1st Jan. 2021, commercial flight tickets have been exempted from VAT.

“Next time you fly, cross check that you’re not wrongly charged VAT and hopefully air fares should come down.”

The exemption of commercial flight ticket from VAT, which is included in the 2020 Finance Act, is expected to reduce flight tickets and improve margins for airlines.

Oyedele, who was one of the members that drafted the bill, told BusinessDay that airline operators made aggressive demands for a number of concessions for the airlines.

He also disclosed that the importation of aircraft and spare parts had also been exempted from VAT, saying the bill, which had been signed by President Muhammadu Buhari, would help bring down prices of air tickets and stimulate demand.

“The biggest challenge the sector has been facing is Covid-19. People are afraid to travel and maintenance of aircraft is very high. Taxes have been an impediment to an extent. If you take out taxes on some of these components, it will help airlines grow their margins,” Oyedele said.

John Ojikutu, aviation security consultant and secretary general, Aviation Safety Round Table Initiative (ASRTI), states that exemption of VAT has been long overdue but not the tickets sales charge (TSC).

“VAT is the responsibility of the passenger not the airlines, while TSC is that of the airlines. While the former is 7.5 percent the latter is 5 percent. I have suggested that the landing and parking charges on services at airports be reviewed according to the category grading of the airport.

“I suggested grading the airports into four, A to D. While Cat A would have the highest charge, Cat D would be the lowest. These are what the airlines should contest, not VAT on tickets. A passenger who pays for economy class instead of business or first class pays less VAT and saves himself some money, not the airlines. There is still the cost of fuel for the airlines to contend with,” Ojikutu explained.

VAT is charged as 7.5 percent on every flight ticket sold by airlines and is remitted to the Federal Government.

The Airline Operators of Nigeria (AON) had estimated that its members were paying over N10 billion as taxes annually, a situation the group said was threatening their operations.

According to the group, VAT remittance was unfair, as only domestic airlines were made to pay, while foreign airlines were exempted.

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