Some aviation experts on Friday said the new increase in Value Added Tax (TAX) rate following the signing of the Finance Act by President Muhammed Buhari might lead to a hike in airfares.
The experts disclosed this in Lagos against the backdrop of Federal Government pronouncements to commenced increment of VAT by February 1.
The new VAT rate of 7.5 per cent has become effective with the signing of the Finance Act by President Muhammadu Buhari on Jan. 13.
The VAT rate was raised by 2.5 per cent from five per cent previously charged.
An aviation expert, Grp. Capt. John Ojikutu (Rtd) said that the new VAT would surely affect air fare but the question to ask the airlines themselves is, how realistic are the current air fares?
Ojikutu said: “The air fare has not increased significantly from what it was in 2014/2015 when dollar was N180 and now at N360 to a dollar.
“You must know however too that aside from catering and few crew members all operational components are offshore including fuel.
“ I have been wondering how the airlines are making profit on flights of about one hour at $100 (N36,000) or less.
“I often say that the airlines must be doing some unknown businesses within the sector and making uncommon profit by selling tickets at less than N30,000 for one hour flight and still claim to be making profit.
“ Again before the airlines financial earnings get stressed by new VAT rate, they may need to review their fares and business plans with the Nigerian Civil Aviation Authority (NCAA).
Ojikutu who is also the Secretary General, Aviation Safety Round Table Initiative (ASRTI), said that the economic regulations of the Nigeria Civil Aviation Regulations provide for such reviews especially the air fares.
According to him, “I have never heard of any attempts by the airlines in recent time asking for an upward review of air fares; the increase in VAT should be the time for such reviews.
An aviation commentator, Mr Simon Tumba, said that the increase in VAT by government would impact air fare saying that “since air fare is vatable, yes it will impact air fare.
Tumba said that “being a deregulated market, airlines will determine their fares. But there’s no anti-trust laws in Nigeria I believe the fares will be similar.
“I am not sure it will boost services or welfare of workers. The general low purchasing power and impact of likely inflation may even worsen things.
Also, an aviation analyst and member of the Aviation Roundtable, Mr Olumide Ohunayo said the increase in VAT would propel a drop in passengers which would affect the earnings from the industry.
He said: “VAT was approved to be removed by this government but there has been a delayed implementation of that policy.
“I hope it will eventually be implemented to have VAT removed from air transport.
“If it is not removed and the increment is now included in air transport, obviously fares would increase and if fares increase, you can be sure that passengers would drop and when passengers drop.
“Almost all facets of the industry would be affected by the revenue loss and our dream of increasing the GDP might just be a mirage.
“You can only improve the industry when you have improvement in passengers,” he said.
However, one of the airline operator, who preferred anonymity said that generally airlines had been clamoring for the removal of VAT on air transport.
According to him, the increase is not seen as a positive move.
The source said that “although government has introduced this increase to increase revenue but this may have the opposite effect as it might lead to increase in fares, thereby suppressing demand which will lead to lower revenues for government.
“Airlines are not really in support of this and still asks the government to look at the issue of VAT on air transport.
“As a low budget carrier, we want the fares to be affordable to all and sundry but we must also consider the airlines and the buying power of the people when churning out these policies.
