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The federal government has moved to reassure the aviation industry that the newly enacted tax laws are designed to support, rather than hinder, airline operations, amid growing public concern over potential fare increases.
Acknowledging the genuine challenges facing the sector, particularly the weight of multiple taxes, levies, and regulatory charges, the Presidential Fiscal Policy and Tax Reforms Committee said it has engaged extensively with airline operators and will continue to do so.
“Contrary to the claim that the new tax laws will hurt the industry, the reform is part of the solution, not the source of the problem,” the committee said in a statement.
It added: “Several long-standing tax issues driving costs in the sector have been resolved in the new tax laws or are being structurally addressed.”
One of the most significant relief measures is the overhaul of the withholding tax on aircraft leases. Previously set at 10 percent, this levy has been removed and will be replaced with a rate determined by regulation, creating the legal basis for either a full exemption or a significantly lower rate. To illustrate, on a $50 million aircraft lease, airlines previously paid $5 million in non-recoverable withholding tax, directly inflating operating costs. Its removal is expected to provide major structural relief to the sector.
The new laws also address Value Added Tax, which had posed hidden costs for airlines. While the temporary VAT suspension introduced in 2020 during the COVID-19 pandemic was intended to ease financial pressure, it prevented carriers from claiming input VAT on certain non-exempt assets, consumables, and overheads. Under the new framework, airlines can now fully recover VAT paid on imported or locally procured assets and services. Excess input VAT will be refunded within 30 days, supported by a fully funded tax refund account and the option to offset VAT credits against other liabilities. This is expected to reduce costs and improve liquidity.
Import duties remain unchanged, with existing exemptions on commercial aircraft, engines, and spare parts fully intact.
Regarding ticket pricing, the committee clarified that a 7.5 percent VAT on tickets, when input VAT is fully recoverable, has a limited net impact on fares. Even in a worst-case scenario, a N125,000 ticket would rise to only about N134,375, while a N350,000 ticket would increase to no more than N376,250.
Corporate Income Tax has also been addressed, with the new law providing for a reduction from 30 percent to 25 percent. Several profit-based levies, including Tertiary Education Tax, NASENI, NITDA, and police levies, have been harmonised into a single Development Levy, simplifying compliance and reducing uncertainty.
The committee emphasised that the multiplicity of levies imposed on airlines and flight tickets predates the new tax laws. While the government is working with operators and relevant agencies to resolve these charges, the harmonisation provisions in the reforms ensure that the situation can only improve from 2026.
“Overall, the new tax laws provide a strong legal and policy framework to resolve long-standing tax challenges in the aviation sector, reduce operating costs for airlines, and ensure minimal impact on passengers,” the committee said.
It concluded that sustained engagement with industry stakeholders would help resolve the remaining non-tax issues and warned that claims not grounded in fact could hinder the process. “The new tax laws are not the problem; they are a critical part of the solution,” the committee affirmed.
