The Presidential Fiscal Policy and Tax Reforms Committee has pushed back against claims that Nigeria’s newly enacted tax laws will worsen the financial strain on airlines, insisting the reforms are structured to lower costs, improve cash flow, and resolve long-standing tax distortions in the aviation sector.
In a detailed explainer, the committee acknowledged the severe challenges facing airline operators, particularly multiple taxes, levies, and regulatory charges. It stressed that government engagement with airlines is ongoing and that the reforms are intended as part of the solution—not the cause—of the industry’s difficulties.
Major relief on aircraft leasing
A key change is the removal of the 10 percent withholding tax (WHT) on aircraft leases, long regarded as the single biggest tax burden on airlines. Under the old regime, a $50 million aircraft lease attracted a non-recoverable $5 million tax, directly inflating operating costs. The new law eliminates the fixed rate and replaces it with a regulation-based framework that allows for either full exemption or a much lower rate, offering substantial structural relief.
VAT neutrality replaces hidden costs
While the post-COVID VAT suspension introduced in 2020 appeared beneficial, it prevented airlines from reclaiming VAT on many inputs, embedding tax costs into operations. The new tax laws restore full VAT neutrality, allowing airlines to claim input VAT on imported and locally sourced assets, consumables, and services. Excess VAT credits must now be refunded within 30 days or offset against other tax liabilities, improving liquidity.
No new import duty burden
Contrary to public concerns, existing exemptions on commercial aircraft, engines, and spare parts remain intact. The reforms do not introduce new import duties or reverse existing reliefs.
Limited impact on ticket prices
The committee argued that fears of sharp fare increases are overstated. With full input VAT recovery, the net effect of a 7.5 percent VAT on tickets is significantly reduced. Even in a worst-case scenario where VAT is not recoverable, the maximum increase would be limited to the VAT rate itself—for example, a ₦125,000 ticket rising to about ₦134,375, or a ₦350,000 ticket to roughly ₦376,250.
Lower and simpler corporate taxes
The new framework allows for a reduction in corporate income tax from 30 percent to 25 percent, a move that would benefit airlines. In addition, several profit-based levies—such as those for education, technology, and police funds—have been consolidated into a single Development Levy, reducing complexity and uncertainty.
Multiple levies still under review
The committee conceded that airlines face numerous non-tax levies and charges but clarified that these were not created by the new tax laws. It said ongoing consultations with regulators and operators aim to address these issues, adding that tax harmonisation provisions ensure the situation can only improve from 2026.
The bottom line
According to the committee, the new tax laws provide a solid legal and policy foundation to cut operating costs, stabilise airline finances, and limit the impact on passengers. It cautioned that misinformation could undermine constructive engagement, emphasising that sustained dialogue—not alarmist claims—will help resolve remaining challenges.
“The new tax laws are not the problem,” the committee concluded. “They are a critical part of the solution.”