The head of Nigeria's tax reform committee has firmly stated that new fiscal policies set for 2026 are designed to lower operating costs for airlines, directly contradicting warnings from a major carrier about potential fare increases that could cripple the industry.
Clash Over New Tax Regime
The Presidential Committee on Fiscal Policy and Tax Reforms (PFPTRC) issued a clarification on Monday, following alarming claims made by Allen Onyema, the Chairman and CEO of Air Peace. During a television interview on Sunday, Onyema warned that the Nigeria Tax Act and related policies taking effect in January 2026 could force domestic economy fares to skyrocket from N350,000 to as high as N1.7 million. He specifically cited the reintroduction of a 7.5% Value-Added Tax (VAT) on aircraft imports, engines, and spare parts, a charge that was suspended in 2020.
Committee Details Major Reliefs for Aviation
In a detailed statement on social media platform X, the committee's chairman, Taiwo Oyedele, acknowledged the sector's challenges but insisted the reforms are part of the solution. He outlined key reliefs embedded in the new laws:
The most significant change is the removal of the 10% Withholding Tax (WHT) on aircraft leases. Under the current law, this non-recoverable tax imposes a heavy burden. For example, on a $50 million aircraft lease, an airline pays $5 million in WHT, directly inflating costs and hurting cash flow. The new law scraps this fixed rate, creating a legal basis for either a full exemption or a much lower charge.
Furthermore, Oyedele explained that airlines will become "fully VAT-neutral." Under the new system, any VAT paid on assets, consumables, and services can be fully claimed back. If an airline has excess input VAT, the law mandates a refund within 30 days. This mechanism is designed to directly reduce cost pressure and improve liquidity for operators.
Existing Exemptions Remain, Overall Tax Burden Eases
The committee strongly denied any reversal of existing exemptions. Commercial aircraft, engines, and spare parts remain fully exempt from VAT. The committee also addressed the VAT on tickets, noting that within a system where input VAT is recoverable, the net impact is far lower than the headline 7.5% rate.
They provided a clear example: "Even in a worst-case scenario where VAT was not claimable, the maximum impact would still be 7.5 per cent... a N350,000 ticket [becomes] not more than N376,250." This is a far cry from the multi-million naira fares suggested in the initial alarm.
Additional benefits include a framework to reduce the corporate income tax rate from 30% to 25%, and the harmonisation of several profit-based levies into a single Development Levy, reducing complexity.
Path Forward for Aviation Sector
Oyedele admitted that the issue of multiple levies on tickets is real but stressed these are not creations of the new tax laws. He stated that the government is actively working with operators to find a lasting solution and assured that the tax harmonisation provisions mean the situation can only improve from 2026.
The committee's final message was unequivocal: the new laws provide a strong framework to resolve long-standing tax issues, reduce airline operating costs, and minimise passenger impact. They urged stakeholders to rely on facts, asserting that "the new tax laws are not the problem; they are a critical part of the solution."
