Controversy trails Value Added Tax exemption on domestic airline services

In June 2018, the Federal Executive Council (FEC or the Council) announced its approval of two Executive Orders and five Amendment Bills touching on key provisions in the Nigerian tax and regulatory legislation. Please see link to our initial alert on the approval of the Executive Orders and Amendment Bills.

One of the approved Executive Orders, ‘Value Added Tax Act (Modification) Order’ (the Order), includes additional list of goods and services exempt from Value Added Tax Act (VAT).

Transport service available for use by the public is one of the services the Order exempted from VAT. Airline operators are of the view that this exemption covers domestic air travel fares. International air travel fares have always not been subject to VAT.

Based on recent news reports, FIRS is yet to implement the directives of the Order, as it continues to demand VAT on domestic air travel fares from airline operators. Non-compliance with the Order by FIRS relative to the expectations of stakeholders questions the effectiveness of the Order.

It is noteworthy that under the VAT Act, the Minister may by Order published in the Federal gazette amend the schedule setting out the exempt items.

Although previous amendments to the VAT Act have not been without controversies, it is pertinent and urgent to determine whether or not domestic air travel fares are exempt from VAT. We expect this controversy to be laid to rest once the Order is duly published in a Gazette.

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