The new policy by the Federal Government to tax First/Business Class passengers could do a calculable damage to air travel in Nigeria. WOLE SHADARE writes
The Federal Government’s decision to levy Business and First Class travellers, otherwise known as luxury tax did not sit down well with travellers. These are coming at a time this class of travellers are complaining that air fares are inexplicably expensive.
Whether it seems timely or a little too late, Nigeria seems to be keen on measures to make the “rich” pay more and therefore address redistribution of wealth through taxation of luxury items.
Generally, luxury tax is a tax on luxury goods and services i.e. goods and services that are not essential and consumed by only a niche.
It could be implemented through a sales tax system, value added tax system, or customs duty system of taxation. It typically affects the wealthy as opposed to the vast majority of the populace because the wealthy are the most likely to purchase luxury items.
In recent times, the Nigerian Government has been showing interest in this form of taxation as a response to the declining revenues from oil and to deal with social imbalance.
In November 2014, the past administration announced plans to introduce luxury taxes in the form of surcharges on items such as private jets, luxury yachts, luxury cars, business class/first class tickets on airlines but that never took place. The one that was seriously condemned was one introduced and forced down the neck of operators by former Minister of Aviation, Stella Oduah on operators of private jets to pay more.
The media and stakeholders fought against it, describing as fraud and one that may not be accounted for going by the desperation of the administration to mop up funds for government.
This is no doubt this could be a bad policy of the government considering the catalytic effect it will have on air travel. Rather than impose new taxes, they should be thinking of reducing taxes in aviation. It is highly uncalled for. They should be talking about review of the national policy; otherwise the industry will be destroyed. That would have adverse effect on Nigeria’s economy.
Implication for aviation
Another implication of this according to some experts is that Business and First Class passengers would no longer be able to afford air travel; a situation that would help to shrink that category of travellers and further lead to them taking alternative option, which is to go to Ghana or Lome, Togo where the difference in ticket is humongous.
There are too many taxes passed to the consumers by different bodies of the government. It’s not good. You are more or less saying that it’s a sin for you to want to live in comfort or fly in comfort.
In a survey conducted by our correspondent in 2013, fare disparity to London of the same equidistance on First Class of British Airways from Abuja, Nigeria, to London, Heathrow Airport pay $9,548.25 while another passenger travelling from Ghana on the same First Class, same plane to London Heathrow Airport will pay $4,970.55. With depreciation of Naira, the fare could be as high as $12, 000 now.
That is enormous. A little increase or tax on it would do a calculable damage to air travel. One cannot however, blame the carrier or any other for the outrageous fares on Nigerian routes because of the principle of demand and supply.
Experts’ divergent views
Capt. John Ojikutu (rtd), former Commandant of the Murtala Muhammed International Airport (MMIA), Lagos in an interview with our correspondent, said that this would amount to double taxation on the flying public.
Ojikutu argued that the first and business class passengers are already paying Value Added Tax (VAT) and Ticket Sales Charge (TSC) to the Nigerian Civil Aviation Authority (NCAA), which are already imbedded in their air tickets.
He said: “What happens to the VAT the passengers is paying? There was a time the government came out with something of such in the past where they said they would commence tax regime on those flying charter jets. Are they going to collect another tax different from VAT from the passengers or are they going to convert the VAT to tax?
“I can’t understand this. It’s going to be double taxation on them because they are already pay tax through VAT. For every passenger on hire and reward, they pay VAT on whatever amount of money they pay. Also, there is another 5 per cent Ticket Sales Charge (TSC) NCAA is collecting from the passengers through the airlines.
“If the government wants to look for money, they should focus more on people flying charter flights. They bring in aircraft to the country and they are not paying customs duties because they are not registered in Nigeria. Let them go round those who have private aircraft and have failed to register them. Those are the people bringing in between $5 to $20 million aircraft. That is where they can get money and not from passengers flying the hire and reward category and are already paying tax.”
Also, Capt. Dele Ore, former President of Aviation Round Table (ART), described the policy as unhealthy for the country’s aviation industry.
He maintained that the flying public is already over-burdened by multiple taxes and charges, stressing that if the government went ahead with the policy, which would further drive away passengers from the sector.
But, Mr. Olumide Ohunayo, the Director, Research, Zenith Travels, said that the government was in order in the planned enforcement of the new tax regime on such categories of passengers.
In an email address to our correspondent, Ohunayo insisted that the tax was long overdue on such classes of passengers.
He said that such tax, which he described as luxury, should also be imposed on non-scheduled operators in the country, hoping that its introduction would affect demand and supply.
He said: “This tax has been parroted for some time now without implementation. I will support it and hopefully it will affect demand and drive price down on our international routes.
“The prices in this class are uncompetitive and often used as the barometer for benchmarking the general fares.”
Airfare taxes, despite their name, are not collected by airlines, airports or any industry within the aviation business but rather by governments. Each government gives different purposes to their taxes, some of which are collected to reinvest in security, infrastructure, and passenger service among others.
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