Despite the recorded gains in Nigeria's aviation sector under Minister of Aviation and Aerospace Development, Mr. Festus Keyamo, significant concerns persist regarding multiple taxations. Throughout 2025, domestic airline operators repeatedly appealed to the Federal Government to reduce these taxes, cautioning that they were not only stifling operations but could also lead to airline shutdowns, even before the new tax laws became effective on January 1, 2026. While the Presidential Fiscal Policy and Tax Reforms Committee, chaired by Mr. Taiwo Oyedele, stated that the new tax laws would ultimately benefit domestic airlines, a recent Civil Aviation Cost Recovery and Revenue Optimisation Stakeholders' Retreat in Lagos highlighted the specific reasons why taxation has become an overwhelming burden for local operators.

During a 3,375-word presentation at the retreat, Charles Grant, Chief Financial Officer of Aero Contractors, articulated that "aviation is not just another revenue line. It's a complex, capital-intensive sector that connects people, moves goods, drives tourism, enables investment, and ultimately grows the economy." He criticized the current Nigerian approach of taxing more while providing less support, observing that this strategy has resulted in struggling airlines, shrinking routes, reduced passenger volumes, and, paradoxically, a diminishing tax base. Grant's appeal was not for tax avoidance but for a focus on growing the sector first, stating, "you cannot extract what you haven't enabled."

Statistical data supports this grim assessment: Nigeria's domestic passenger volumes have declined by approximately three percent since 2022. Grant clarified that this decline does not signify a drying up of demand, but rather a suppression caused by surging ticket prices, multiplying fiscal charges, and escalating airline costs, which price out or deter passengers. This contrasts sharply with consistent growth in domestic traffic observed in peer countries like Kenya, Egypt, and South Africa. This stagnant performance in a growing market signals a critical "red flag," indicative of a mismatch between aviation realities and fiscal policy application. Grant pointed to fragmented decisions, limited coordination, and policies developed without considering airline economics. He warned that if this trend continues, Nigeria risks losing not only passengers but also jobs, tax potential, and its future standing in the region's aviation landscape, as aviation stagnation impedes broader economic momentum.

The industry is burdened by an extensive list of fiscal charges, including the ticket sales charge (TSC), passenger service charge, Value Added Tax (VAT), Pay-As-You-Earn, ground handling charges, overflight charges, navigational charges, customs duties, and even levies on catering and inflight services. These charges are not isolated; they compound, severely impacting already slender profit margins. Consequently, airlines cannot fully pass these costs to passengers without risking demand, forcing them to absorb the difference. This leads to a vicious cycle of shrinking route networks, reduced aircraft utilization, delayed maintenance, and unpaid staff. Furthermore, local carriers operate at a disadvantage compared to foreign airlines, who often benefit from diplomatic leverage and favorable tax arrangements, creating an uneven playing field. Grant emphasized the urgent need to "rewire the cost architecture" to ensure the survival and competitiveness of Nigerian airlines.

The New Tax Laws have introduced further complications. Notably, the zero-VAT status for international travel has been abolished, directly undermining the competitiveness of Nigerian carriers and contradicting practices in most aviation-forward nations. Additionally, the Act's vague language regarding what constitutes a taxable supply creates uncertainty, leaving airlines to speculate about VAT applicability to leases, spares, and maintenance contracts, which inherently increases risk and operational costs. More frustratingly, Customs delays and enforcement actions persist despite valid waivers. Operators often spend weeks attempting to clear critical parts, frequently when aircraft are on ground (AOG) status, due to policy ambiguity or inconsistent interpretation by field officers. This leads to schedule disruptions, revenue loss, strained passenger confidence, and, on occasion, risky decisions under pressure.

The reintroduction of VAT on airline tickets, spares, and aircraft is specifically identified as a "clear step backwards," directly contradicting global aviation norms. Both the International Civil Aviation Organisation (ICAO Doc 8632) and the International Air Transport Association (IATA) recommend zero-rating aviation inputs. Regional counterparts such as Ethiopia, Kenya, and Rwanda have all exempted these costs. VAT on aviation is not merely a financial burden; it sends a negative signal to investors, passengers, and partners, leading to decreased demand, stunted growth, and an exacerbated competitive gap. ICAO and Airports Council International caution that taxes uniquely imposed on aviation reduce national welfare by making travel costlier, shrinking volumes, and ultimately generating less revenue than initially projected, a phenomenon referred to as fiscal illusion.

A critical "fiscal illusion" needs to be addressed: the misconception that increased taxation on aviation will automatically lead to higher government revenue. In practice, the opposite occurs. When taxes and charges rise within an already high-cost environment, airlines respond by cutting routes, reducing flight frequency, or grounding aircraft altogether. As air traffic shrinks, so too does the entire revenue base, resulting in fewer tickets sold, less VAT collected, reduced fuel uplift, fewer handling jobs, and less catering. The entire aviation ecosystem contracts. Foreign carriers often fill the resulting demand but are not taxed similarly and repatriate their earnings, causing the fiscal benefits to leak out of the system. Grant starkly concluded, "You don't tax a struggling engine into high performance. You fuel it."

The non-implementation of Customs waivers for aircraft parts, originally intended to bolster safety, alleviate cost pressures, and ensure aircraft remain operational, is failing in practice. Despite holding valid waivers, airlines routinely face weeks of delays in clearing essential spares due to policy ambiguities or arbitrary charges. This often results in aircraft being grounded, causing schedule disruptions, significant revenue loss, and diminished passenger confidence. On rare occasions, it can even lead to risky decisions made under pressure. Moreover, the upfront payment of duties, followed by a lengthy process to chase refunds, severely impacts airlines' scarce working capital.

Nigeria's current fiscal approach to aviation is not only burdensome domestically but also out of alignment with international aviation tax norms. Under ICAO guidelines, member states are expected to avoid taxing air transport inputs in ways that distort market access or discourage growth. This is precisely why most aviation ecosystems implement zero-rating for inputs such as spare parts, maintenance, and fuel. Violating this principle not only harms Nigerian carriers but also risks trade parity and bilateral reciprocity. For Nigeria to assert leadership in aviation, a fundamental realignment is imperative, requiring the zero-rating of aviation inputs, consistent enforcement of waivers, and the elimination of the fiscal drag that is currently stifling growth and eroding competitiveness.

The industry's demands are clear and specific. First, reintroduce the VAT exemption that airlines previously benefited from, which was a strategic tool to maintain affordable fares and airline viability. Second, consistently enforce Customs waivers, particularly for aircraft parts and AOG spares, to prevent unnecessary grounding of aircraft. Third, eliminate "tax-on-tax loops," where VAT is imposed on other levies, as this compounds costs and inflates fares without increasing revenue. Finally, there is a strong call to streamline fiscal charges across all tiers of government – federal, state, and airport authority – to achieve much-needed harmonization.