Dust over imposition of VAT on travel agents’ service charge

The memo directing travel agencies to remit Value Added Tax (VAT) on service charges from tickets is unsettling practitioners in the downstream sector of the aviation industry, Daily Trust can report.

President of the National Association of Nigerian Travel Agencies (NANTA), Mrs Susan Akporiaye, raised the issue recently, saying a memo emanated from the Federal Inland Revenue Service (FIRS) mandating the travel agents to pay VAT on their service charge when airline tickets have been exempted from VAT.

The development is unsettling the travel agencies as the leadership of NANTA plans an interface with the tax authority to clarify the new directive.

Our correspondent reports that the federal government waived VAT on airline tickets as far back as 2018 but the implementation did not start until 2021 with its inclusion in the 2020 Finance Act signed by former President Muhammadu Buhari.

• Na’Abba lion of 4th National Assembly, a patriot – Anyim
• New year: Senator Maidoki rejoices with constituents, pledges better representation

However, speaking at the last Aviation Roundtable Breakfast Meeting, the NANTA boss said her members were being harassed to pay tax on their service charge on ticket booking when the VAT has been exempted from airline tickets.

She said, “In our industry, there was a circular from FIRS and it is so strange. Now they are saying that tickets sold by airlines are not subject to VAT but the commission earned by travel agents is the one that is subject to VAT. I am like, how? We all know that VAT is part of the tax on tickets that constitutes the body of the ticket.

Do you know that I just saw that my members ran into issues and FIRS was after them and so they came to me?

“And I said, ‘Can I see this document?’ When I saw it, it was ridiculous. We are not the consumers of this ticket. The target is the consumer and that is why the VAT is on the ticket and the FIRS said the ticket should not be VATable; they should not pay VAT on the ticket but they should come and collect VAT on my own commission when I wasn’t even the one that consumed the ticket. No more commission but they said the service charge stands as our commission and we must pay VAT.“

Providing further clarification to our correspondent in a telephone chat, the NANTA president said, “It is income tax I pay on my earnings, not VAT. When I issue tickets, it is the customers that pay the VAT and VAT paid by customers would be remitted to inland revenue but that is not what the document is saying; it is saying my income after everything, what I have earned, is being subjected to income tax, education tax and VAT as well.”

She said NANTA would engage the tax authorities in the new year to address the issues.

But stakeholders are divided over the matter. Speaking with our correspondent, an aviation management consultant who did not want to be named said, “I am not a tax expert but my thinking is that just as consultants and agents add value in the process, they should pay VAT.

“You know the government has removed VAT on gas products to encourage the use of gas. So, are you saying if I sell gas, because there is no VAT on gas, the government should not collect gas on my own commission? It is a value added tax from production to consumption. You are adding value along the value chain. So that value you earn is what they are charging you VAT for. You are earning commission. So that commission is what they are taxing.”

Aviation analyst, Sindy Foster, said, “Unfortunately the service charge is liable for VAT.  It is only the ticket cost on which VAT is excluded.”

She said the case must be made against multiple taxation for all businesses in Nigeria.

General Secretary of ART, Olumide Ohunayo, said more clarifications must be provided on the VAT demand on travel agencies’ service charge.

Chairman, Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, could not be reached for comment Sunday as a text message sent to him was not replied as of press time.

It would be recalled that it was Oyedele who announced the VAT waiver on airline tickets in a tweet in 2021 when he served as a consultant to the federal government on the 2020 Finance Act.