Airline operators and the VAT impasse

Aviation unions

On 31st of May, 2018 the Airline Operators of Nigeria, AON arose from a meeting and announced to the world that starting from 14th June, 2018 they will no longer remit Value Added Tax, VAT, to the federal government as they consider it a form of double taxation on the industry. According to the CEO of Topbrass Aviation, Roland Iyayi, who briefed newsmen after the meeting on behalf of the association, “The AON has resolved that effective June 14, 2018, its members shall cease to make VAT remittances as doing so is unfair, as some airlines are paying, while some other airlines are not paying domestic VAT charges. “Also, Nigerian domestic airline travel is the only mode of transportation paying VAT in the country today as road, rail, marine and international airlines do not pay.” It is instructive to note that the operative expression in the statement is “cease to make VAT remittances” to the FG. In other words, the airlines would likely continue the collection of VAT from passengers but will not remit same to the federal government because they feel they are already being overtaxed.

As a background, the standoff between airline operators and the federal government on VAT did not arise today. In 2013, the government unveiled a platform for auto tracking and remittance of VAT known as FIRS VAT-Collect. This is designed to curb the incidence of tax evasion that is more pronounced with payment and remittance of VAT. By 2015, some airlines were still reluctant to register on the platform, and this led to a threat from the Federal Inland Revenue Service (FIRS) to disrupt the operations of those that had not enrolled on the new platform. The threat issued by FIRS was greeted with public condemnation as no law requires a tax payer to enrol on a digital platform for VAT remittance. The tax agency did not carry out the threat as published in national dailies but the pressure on airlines in the country did not cease.

By 2017, following the sustained pressure from the Federal Inland Revenue Service (FIRS) on the remittance of VAT, a delegation from Airline Operators of Nigeria (AON) and International Air Transport Association (IATA) paid a visit to the head of the tax agency, Dr.Babatunde Fowler. At the meeting, leader of the delegation who was also the chairman of AON, Captain NogieMeggison said “Airlines have no issue with paying or collecting the statutory VAT for FIRS but that there was need to take a look into the issue of fairness against our competitors, clarity on the automation as well as, a 30 days period to allow for invoicing and reconciliation.” This submission by the chairman of AON presupposes that airline operators did not have problems with the law; rather they only had reservations about the manner the law was executed. They would rather appreciate a situation that allows themretrieve profit before remitting VAT to the federal government.

In consideration of their request Dr.BabatundeFowler said, “We agree that the airline industry is challenged. Government is not out to make profit but to make life more comfortable for the people. Exemptions on tax issues are beyond FIRS as they do not make the law. So, all we can do is an offer to make it easier to give domestic airlines a soft landing by meeting them halfway in order to obey the tax laws.” Recognising the challenges facing the aviation industry, the FIRS eventually granted airlines in the country a “concession of two months after the billing period (M+2) to make their VAT remittances so that collections done now are swept during the upper month instead of the following month in order to give room for reconciliation and for the carriers to recoup their credit sales.” And in response to the request by the AON for the government to scrap VAT on airlines as it would increase patronage, the FIRS boss advised the delegation to take their request to the national assembly and presidency since the tax agency lacks powers to amend the law or provide executive order for tax exemptions. It is therefore somewhat surprising that the AON wouldunexpectedly put forward another stance that negates their earlier declaration of willingness to remit VAT to FIRS. This latest U-turn simply connotes that the supposed agreement between AON and FIRS at the meeting was a mere show for the camera. Nevertheless, the AON appears to have entered into a battlefield where the law does not provide sufficient cover for them.

The law underpinning VAT operations in Nigeria does not recognise transportation, especially air travel as one of the services exempted from VAT payment. To that extent it is legal and appropriate for the federal government to impose VAT on air travel in the country. Airline operators only receive this tax as agents of the government and are expected to remit through FIRS based on agreed template. It is therefore questionable and preposterous for operators who receive the money in trust not to remit to the federal government because they single-handedly consider it double taxation. Airline operators are not the ones paying VAT; passengers are the ones paying. Operators simply receive the VAT in trust for the government and should remit same.

That the aviation industry in the country is going through a turbulent time is not in doubt. It is a known fact that airline operators are struggling really hard to survive a harsh business environment. It is also understandable that the elimination of VAT on air travel may lead to reduction on air fare, which has the capacity to stimulate higher patronage and contribute to the growth of the industry. These issues and many more were responsible for the presidential committee set up in 2017 to review the issue of multiple leviesin the aviation industry. However, that cannot be used as the basis to make demands that may not fly in the immediate term. Rather than make a fuss about remitting VAT to the FIRS, the airline operators should make other demands through the appropriate channels. A case can be made for tax exemptions and other government policies that will positively impact the business environment. As stated by Mr. Roland Iyayi“There was a Presidential Committee set up in August 2017 to address the issues of multiple charges on the airlines, but about 10 months into the inauguration, the government was yet to do anything about this and the recommendations of the committee. These multiple charges by the government are undermining our operations and we can no longer sustain it.”

It would have been laudable for the association to channel the agitations to the presidency and the Presidential Enabling Business Environment Council (PEBEC).In actual fact, pressure should be mounted on the presidency to consider the report of the presidential committee and possibly implement recommendations in the report for the growth of the industry. It is questionable and ethically inconsistent to collect VAT from passengers and not remit to the FIRS because the ultimate tax burden is borne by the final consumer and not the non-commission earning agent that the airlines are. Perhaps, the morally justifiable stance is fighting for passengers not to pay VAT; but when passengers pay, it must be remitted accordingly. Yet, it is important to note that it is not within the boundaries of airline operators to unilaterally decide that passengers should no longer pay VAT; that is the prerogative of the government. To do otherwise is erroneous and tantamount to illegality.

VAT collection on transportation and especially air transport is not exclusive to Nigeria. The same practice is obtainable in other developed economies where VAT is between 15 and 25 per cent as opposed to the 5 per cent we operate in Nigeria. This, however, does not suggest that every form of tax obtainable in other countries must be imposed on Nigerians. But the need to strengthen our tax laws and tax administration in Nigeria cannot be overemphasised.

Issues like this may overshadow genuine call for the government’s intervention in the aviation industry. There are more pressing issues that should be addressed and treated urgently to make the industry live to its full expectations. AON should reconsider their stance, drop the threat, and work with the FIRS to make the process of remittance favourable to all airlines. The association should be more dedicated to pushing for reforms that will turn around the aviation industry in Nigeria. Nevertheless, this should serve as a signal to the government that airline operators in the country are getting frustrated by the unfavourable business environment. Many airlines have been liquidated in the past few years and many more are in distress. The Presidential Enabling Business Environment Council (PEBEC) should pursue sustainable reforms in the aviation sector with unwavering. We do not need piecemeal reforms but holistic reforms. The starting point should be a reassessment of the many taxes imposed on operators in the country. We should not kill our aviation sector with unbearable tax burden.

 

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