FG Insists Airlines Must Pay VAT Under New Tax Reforms Act

The Federal Government has reaffirmed its commitment to enforcing the provisions of the new Tax Reforms Act, insisting that airlines and other aviation operators will begin paying Value Added Tax (VAT) from January 1, 2026.

This decision, however, has sparked criticism from stakeholders, including the International Air Transport Association (IATA), which warned that the move contravenes international treaties signed by Nigeria, particularly the December 2024 ECOWAS Treaty that exempts air passengers and cargo from taxation.

At a Business Webinar organised by Aviation & Allied Business in partnership with the Federal Inland Revenue Service (FIRS), officials defended the reforms under the theme: “Nigeria Tax Act (2025) & The Aviation Industry: Aviation Sector Enlightenment Initiative.”

Speaking at the session, Mrs. Nkechi Umegakwe, Assistant Director of the Nigeria Revenue Service, maintained that the government had conducted due diligence before introducing the reforms. She stressed that all airlines and allied businesses would now be required to pay VAT on services and imports, including aircraft, engines, and spare parts.

“VAT is a consumption tax borne by end users. From January 2026, airlines will no longer enjoy exemptions. However, refunds can be processed within 30 days if eligible,” she explained.

The Federal Government had previously removed VAT and customs duties on aircraft and spare parts in 2021, a policy reversal that has drawn sharp criticism from industry experts.

Dr. Samson Fatokun, IATA’s Area Manager for West and Central Africa, faulted the policy, describing it as an additional burden on already struggling operators. He argued that existing levies, such as the 5% Ticket Sales Charge/Cargo Sales Charge (TSC/CSC), had already driven up ticket prices and discouraged air travel.

“Aviation is a global business governed by international treaties. By reintroducing VAT, Nigeria risks violating agreements it signed under both ICAO and ECOWAS. This undermines investor confidence and stifles growth,” Fatokun warned.

Aviation expert Capt. Samuel Caulcrik echoed similar concerns, noting that combined charges of 7.5% VAT and 5% TSC/CSC amount to multiple taxation that could “kill the industry.”

“Every additional cost imposed on airlines trickles down to passengers and shippers. The result is fewer travellers and weaker performance,” he said.

While some stakeholders acknowledged potential benefits of the reforms such as harmonised tax laws, digital tracking, and improved compliance many called for further engagement between government and industry players.

Mrs. Nkechi Onyenso, Managing Director of Pathfinder Securities, urged the government to reconsider, citing the impact of foreign exchange shortages and existing levies on aviation operators.

“The reforms may have advantages, but there is urgent need for dialogue to balance government revenue goals with the survival of the sector,” she advised.

Despite the opposition, the Federal Government maintains that the Tax Reforms Act is designed to broaden its revenue base, reduce business costs through VAT recovery, and streamline compliance.