….replaces minimum tax with 15% global rate for major aviation companies
The Federal Government’s comprehensive tax reforms are set to introduce significant changes for Nigeria’s aviation industry, with new regulations mandating the collection of Value Added Tax (VAT) by agents and tightening compliance for non-resident airlines.
These measures are part of a broader overhaul aimed at simplifying Nigeria’s tax laws, enhancing revenue, and aligning the country with global best practices.
In her presentation at a recent virtual meeting organized by the Aviation & Allied Business Publications in partnership with the Nigeria Revenue Service, NRS, on the topic: “Implications of the new tax laws for the aviation sector”, representative of the NRS, formerly, Federal Inland Revenue Service, FIRS, Mrs. Nkechi Umegakwu detailed the implications of the new laws as proposed by the NRS.
A key change directly affecting the aviation value chain is the requirement for agents earning commissions to collect and remit VAT through their operational platforms.
This means that entities like travel agencies must now use their systems to deduct the applicable VAT on their commissions at the point of transaction and remit it to the government, a move designed to close compliance gaps.
Stricter Rules for Foreign Airlines
While the fundamental principle of taxing non-resident airlines on profits generated from the carriage of passengers and goods loaded in Nigeria remains largely unchanged, the government is introducing stricter compliance measures.
Under the new laws, foreign airlines will be required to file monthly returns, including evidence of tax payment.
Mrs. Umegakwu explained this is to prevent tax evasion, particularly by carriers that operate in Nigeria for short periods and may leave the country before fulfilling their annual tax obligations.
Furthermore, if a non-resident airline cannot provide its annual financial statement, it must submit a detailed gross revenue statement of its Nigerian operations, certified by a director and its external auditors.
This ensures that all income earned within the country is properly accounted for and taxed, reflecting the government’s resolve to secure its revenue base.
Harmonization and Simplification of Laws
The reforms were driven by the need to harmonize numerous, often conflicting tax laws enacted decades ago, some even pre-independence.
Mrs. Umegakwu noted that businesses previously had to consult multiple acts for different taxes, creating confusion and inefficiency.
The new structure consolidates these into two primary laws: the Nigerian Tax Act, which covers all tax types like VAT and income tax, and the Nigerian Tax Administration Act, which deals with filing, enforcement, and penalties.
This overhaul aims to create tax certainty, simplify compliance, and make Nigeria’s economy more competitive, especially with the African Continental Free Trade Area (AfCFTA) in view.
“The essence was to harmonize everything so that everything is in one document,” Umegakwu stated, adding that the goal is to “tax prosperity and not poverty.”
Major Changes in Corporate Taxation
The reforms also usher in several significant changes to corporate income tax that will impact Nigerian-based aviation companies.
The previous three-tier company classification has been simplified to two: small companies with a turnover below ₦50 million, which remain exempt from income tax, and all other companies, which will be taxed at a 30% rate.
In a move to ease the compliance burden, various levies such as the Education Tax, Police Trust Fund Levy, and others have been collapsed into a single Development Levy, payable on accessible profits.
Additionally, Capital Gains Tax will no longer be a separate tax; instead, gains from asset sales will be treated as part of a company’s regular income.
Aligning with global standards to combat tax avoidance by multinational corporations, Nigeria will also replace its minimum tax rule with a 15% effective tax rate.
This applies to companies that are part of a multinational group with a global turnover exceeding €750 million or any other company with an aggregate turnover of ₦50 billion and above.
This ensures that profits generated in Nigeria are adequately taxed and not shifted to lower-tax jurisdictions.
Reporting By Nosa Aituamen