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VAT increase: Prepare to pay more for airfares, vehicle prices ─Businesses

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Web Editor | ConsumerConnect

As the Nigerian Government is poised to implement the new Finance Law with effect from February 1, 2020, there are indications that the increase in the rate of the Value Added Tax as spelt out in Law may lead to increases in airfares and prices of new and used vehicles respectively.

ConsumerConnect recalls a fresh VAT rate of 7.5 per cent, from previous 5 percent, has become effective with the signing of the Finance Act by President Muhammadu Buhari Monday, January 13.

The Punch reports that experts and operators in the aviation and automobile sectors said air travellers and buyers of vehicles should be prepared to pay more for airfares and automobiles respectively.

They, however, expressed optimism that new entrants would be attracted into the auto business and aviation support services.

Mr. Tayo Ojuri, Managing Partner, Aglow Aviation Support Services, Lagos, said the increase in VAT would impact airfares.

The Federal Government had ordered the removal of VAT from airline taxes as the only multimodal transport system paying it, but it has not been implemented more than a year after.

Ojuri explained that even if airlines decided not to increase prices of flight tickets, there would be pressure from other support services to be affected by the VAT increase.

“Prices will be impacted because we are looking at 7.5 per cent of base fare. Even if it is five per cent, it will still have an impact.

“Aviation has a value chain that will pass costs to the airlines. The service providers will pass on the charge to the airlines and the airlines will pass it on to the passengers,” he stated.

Airlines, he said, deal with a lot of costs, saying, “it is a fact that aviation fuel takes 40 per cent of their overhead.

“So, if we are adding 2.5 per cent VAT to the existing five per cent, it will definitely make a difference.”

The aviation support services expert, however, noted that passenger traffic might not be affected as most Nigerians still consider air travel as elitist: they travel mostly for business or life-changing events such as weddings.

Kunle Jaiyesimi, Deputy Managing Director (DMD), CFAO Motors, Nigeria, also said auto assemblers and vehicle dealers could not absorb the increase in the VAT rate, but would have to pass it on to the customers.

“Prices of vehicles have to go up. Already we have about 250 units (vehicles) at the port awaiting clearance. We just hope the Customs platform has not been changed because we had orders for those vehicles, when prices were fixed at five per cent VAT rate,” Jaiyesimi stated.

Remi Olaofe, Executive Director, Nigerian Automotive Manufacturers Association, also stressed that the Finance Law would encourage “new entrants into the auto business and ensure government’s support for small-scale businesses to grow.”

Nonetheless, Dr. Oscar Odiboh, who is a transport consultant and lecturer at the Covenant University, Ota, Ogun State, also said the new VAT rate would boost government’s revenue and, “as the biggest buyer of automobiles, it can buy more and put more money in the system for people to buy vehicles.”

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