Air passengers are expected to start paying lesser fares soon after the Nigerian government suspended the deduction of 7.5 percent Value Added Tax (VAT) on airfares and other air transport services.
The suspension order which was scheduled to take effect on January 1, 2021, is contained in the 2020 finance act recently signed by President Muhammadu Buhari.
The aviation sector suffered setback last year, 2020 following the lockdown that was imposed by many countries including Nigeria to curb the spread of COVID-19 pandemic.
The Federal Government’s move is believed to help cushion the effect of the pandemic and help the aviation sector revive.
Airline operators on Monday confirmed that they have received the directive on VAT removal from the government, but they are waiting for the Federal Inland Revenue Service (FIRS) to implement the directive before the low fares regime comes into operation.
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Although, operators have expressed different views on the removal of 7.5 percent VAT, as some believe the development could bring about considerable reduction of airfares, others said substantial reduction might not be realisable because airlines were still grappling with oscillating exchange rate as the airport authority moves to increase Passenger Service Charge (PSC).
Chairman of West Link Airlines Captain Ibrahim Mshelia, said the suspension of VAT was a good development for domestic carriers.
“If implemented, the removal of Value Added Tax will ease, standardise and harmonise our system with international best practices. It is a good move in the right direction,” Mshelia said.
Chief Operating Officer, Dana Air, Obi Mbanuzor said: “We are happy about the removal which we feel should naturally reflect on fares and possibly bring it down but with the inflation of other aspects of the chain like dollar rate this might not be possible. We know the government has no control over this but it is a major concern.”
He noted that with all the other extraneous costs being borne by airlines, the adjustment to air fare may be minimal.
“So we are not saying it won’t affect but might be slight because other factors are still springing up and it’s a chain. Policy! Policy! Policy! Will impact the airlines better but this is also appreciated. One step at a time and this is one very good step at getting it right,” Mbanuzor said.
Head, Research, Zenith Travels, Olumide Ohunayo added: “I’m happy to see the implementation of the VAT because in the first place, the airlines were putting it on the ticket and oftentimes as in Virgin Nigeria case, they will not be remitted to the Federal Government and this amount was put on tickets and taken from passengers.
“The fares were loaded with security, fuel surcharge and other charges. I don’t expect much difference in the ticket prices those were the hidden charges airlines benefited from and now it is gone. We expect that airlines should be able to issue tickets stating clearly the fare and what the other charges are; it should not be hidden anymore so we can have some progress in the fare structure.”
