The Private Jet Behavioral Adjustment Development Levy (PJ-BAD)

Regardless of whether it was given to him as a gift by his congregants or he somehow gave it to himself, it’s safe to say that the President of the Christian Association of Nigeria (CAN), Pastor Ayo Oritsejafor will now be flying in a private jet. He joins Bishop David Oyedepo, said to own more than one, and Pastor Enoch Adeboye who has use of a private jet purchased by some members of the church.

One thing to be clear about on this matter is that Pastors are in the minority when it comes to this growing trend. If the Punch is to be believed, the number of private jets in Nigeria has gone from 20 in 2007 to more than 150 today. This accelerating trend is definitely not being driven by Pastors alone – Governors like Rotimi Amaechi, Godswill Akpabio and Danbaba Suntai not to talk of the ‘fuel subsidy boys’ are now in on the fad.

If you recall during the fuel subsidy debate of January this year, an unnamed Governor was quoted by ThisDay as saying the fuel subsidy needs to go because those who were making money off subsidy were making it hard to find parking space for private jets in Abuja (this Governor too had a private jet evidently):

It is so bad now that even when you get to Abuja, you don’t have anywhere to park your aircraft because these small, small boys now have private jets parked all over the place.
“So where did they get the money from? Subsidy! We obviously cannot sustain it and the earlier we embrace the truth, the better

So it’s plain to see that Pastors are hardly the main culprits when it comes to this private jet business. But there is something that captures the public imagination about Pastors owning PJs. It is very annoying and personally, the mildest I can describe how I feel about it is to say it irritates me.

But then again, we must be clear-eyed about it – a) Nothing illegal has been done b) In some cases the PJs are gifts to the Pastors and c) The Pastors can always claim their hectic schedule travelling the world to spread the gospel to all men demands a more nimble form of transport.

So what’s the problem with Pastors, Governors and Subsidy Boys buying private jets? The main issue is here is negative externalities. This is to say there are costs to people/society who were never involved in the PJ transaction between the buyer and the seller. You might be going around minding your business in a BRT bus but somehow you are bearing the cost of some random guy buying a private jet.

Private Jets are one of the starkest displays of inequality especially in a society like Nigeria. Travelling by air is already restricted to the top 1% in society so going one up and flying a private jet further widens an already unhelpful gap. There’s also the problem of the way capital is allocated in society. A lot of money gets stolen in Nigeria on a daily basis. That doesn’t mean the stolen money in itself cannot still be put to some good use, regardless of the current ‘custodian’ of the money. But such money needs to be teased/incentivized out to do something more useful. By extension, because private jets, like okadas which only carry 2 people at a time, are an inefficient means of transport, the numbers will simply continue to increase until something is done about it. This will lead to the annoying situation where private jets end up using more and more of our public facilities i.e. airports than they should.

Now as much as I hate taxes, there are times when I am willing to tolerate them if there is a behaviour that needs to be corrected in a society i.e. if you want less of something you should tax it and if you want more of it, you should subsidize it.

So what we need here is to somehow tax the ownership of private jets while at the same time teasing those funds into aviation in general to make air travel more accessible to more and more Nigerians. Afterall one of the main reasons why people buy private jets has to be the poor state of our roads and difficulty in getting from one part of the country to the other due to non-existent mass transportation. These problems affect everyone in society but since being rich is about having choices, they are able to do something about it.

So we need a Private Jet Behavioral Adjustment Development Levy (PJ-BAD) 🙂 and it will work something like this:

The Floor

The first thing we need to do is determine when an aircraft stops being a private jet and becomes a commercial plane. The best way to do this, I think, is by the number of seats. Let’s take the Gulfstream G650 as a useful example. Admittedly this is a very new model but if you read the specifications document on the website, we can easily ascertain that the configuration with the highest number of seats will give something like 25 seats (including the crew).

So let’s set ‘the floor’ at say 35 seats just to be on the safe side shall we? That is to say, any aircraft with 35 seats or less will automatically be subject to the PJ-BAD Levy. The full whack of the levy will be applied on any aircraft that falls into this category with tapered relief as the number of seats rise (I am coming to this).

It’s important to use the number of seats to measure the floor as this cannot be rigged. It is unlikely if not impossible, that a Governor or Subsidy Boy will seek to escape this tax by getting a carpenter or upholsterer to add more seats to his plane.

Eligibility

Having set the floor at 35 seats, we then come to the slightly trickier question of who should pay this tax. Say for example we are holding an investors conference in Abuja and a lot of Princes from the Middle East are invited as potential investors, the last thing you want to do is harass them with a tax if they all turn up in their private jets. In short we don’t want to slap the levy on people who are only visiting us.

The next option to consider is the registration of the aircraft we want to tax. Alas, this is likely to be unhelpful as I understand most private jets in Nigeria are registered in South Africa or elsewhere. Further, if we are to simply use registration as a criteria, we are more likely to end up giving business to neighbouring countries who will only be too happy to welcome jet owners fleeing Nigeria.

So between jet registrations and number of seats, we need to find a sweet spot to ensure that whoever this tax falls on, is exactly the kind of person we are targeting i.e. a Pastor, a Governor or a Subsidy Boy.

This gives two options a) The number of times a jet flies into Nigeria in a year. So we set a trigger at say 4 times a year. Once this trigger is hit, the PJ-BAD Levy becomes payable in full for the year regardless of whether the 4th time it came into Nigeria was in November or December. Yes some Smart Alec will try to escape this by only flying into Nigeria 3 times a year and leaving the jet elsewhere for the rest of the year. I can live with this. Bear in mind, the purpose of this levy is to reduce the number of private jets in Nigeria and force the people to spend the money on something else.

b) The number of hours the plane spends in Nigeria. Again this will be set at a certain trigger. I am not very familiar with this area of aviation so I cant say what the number of hours should be. The trigger number of hours in will also be set for the whole year so say 60hrs in a year or something. Again, this can be dodged by the jet owners by telling their pilots to leave the engine on while they disembark and then going to park it in Ghana as soon as they get off the plane. This is fine as it imposes a cost on the owners they will soon realise is foolish to incur.

The Levy

How much do we set this Levy at? It must be high enough to ensure the owner feels the pain of paying it but not too high that we simply have no private jets at all in Nigeria anymore (I don’t think anyone wants Nigeria to be private jet free zone). But we don’t want it to be too low to the point where, as Nigerians are wont to do, it becomes something people will boast about. You know how big boys might be in the club and casually flaunt their PJ-BAD Levy receipt so people know they’ve paid it…as sure boys, in the words of Mr May D.

Again the best way to do this will be to calculate the Levy as a percentage of the annual cost of running the plane. Personally, I think that any tax above 40% has turned into a punishment so I’d say we set the PJ-BAD Levy at 45% of the average annual running cost of a private jet.

The costs of owning a jet for a year vary wildly depending on the type and age of the jet in question. A Citation X for example might cost almost $900k (N144m) according to a calculation by Forbes in 2010. If we use this figure, our PJ-BAD Levy will thus be $405k or N65m per annum.

Ergo, once those triggers are hit in a year (the first year), the Levy is automatically payable in full no matter at which point in the year it happens. Further, once a jet has triggered a levy in one year, the assumption is made that it will also be eligible for the tax the following year. So if you pay the levy in say June 2012, automatically on January 1st 2013, you will be sent an invoice asking you to pay the levy for 2013 upfront. If it happens that you don’t trigger the levy in 2013, then you will be given a refund (subject to an administration charge of course).

Taper Relief

So we have established the stick at 45% or N65m per annum for the PJ-BAD Levy. Given that we can at least agree that the money used to buy these jets in and of itself does not smell, what we want is for them to use it for other things with better externalities.

A carrot is thus needed. Let’s go back to the floor of 35 seats we set above. We can calculate the relief for the levy in blocks of 10 seats each. If you bring in a plane that has 10 seats above the floor i.e. 45 seats, you will qualify for a 20% relief from the levy. So a 45 seater plane will only pay N52m. A further 10 seats (55 seater) will get you another 20% discount (N42m payable). You get the gist. Thus any plane with 85 seats and above will not be subject to the PJ-BAD Levy. In effect what we are saying is that ‘Hey, look private jets are an inefficient way of moving people around. So we’d rather you spent that money on buying bigger planes so you can carry more people’.

In other words, an 85 seater plane is no longer a private jet and it will be rather ridiculous for a Governor or Pastor to buy an 85 seater plane just to avoid a levy of N65m (I don’t doubt that Nigerians can do this though but we cannot solve every problem in this life).

The hope is that we manage to divert some if not all of that N1.3trn that has been spent on private jets in Nigeria in the last 5 years into aviation proper. If the money is burning a hole in the pockets of the Subsidy Boys and Pastors, let’s encourage them to spend it in this way.

Where Does The Money Go?

For me, this is the trickiest bit and is one of the main reasons why I hate taxes. Once a govt starts to collect them, it is almost impossible for it to stop given that govts tend to spend everything that comes their way. In the words of the great Milton Friedman ‘nothing is so permanent as a temporary government programme’. If the funds raised from such a levy are not directed properly, then even when the tax has achieved its purpose i.e. the behavior has been corrected, the govt will simply move the tax elsewhere and continue to collect it.

If we assume there are 150 private jets in Nigeria today and we slap the full levy of N65m on all of them, this will raise almost N10bn per year. We cannot give this money to FAAN or the Ministry of Aviation. Why? If you give the money to a govt agency, you automatically create an incentive for them to defend its existence in perpetuity. If you ask FAAN to collect it, they will hire a Director of PJ-BAD Levy to oversee the collection of the funds. As rams cannot possibly be expected to vote for Sallah, this Director and all the staff who work with him/her will never run out of excuses as to why the levy needs to be continued and expanded to helicopters perhaps (I am charitably ignoring corruption here)…even when Pastors and Governors have stopped buying the jets as we want them to do.

So where do we send this money? Some pragmatism is needed here I think. The Central Bank of Nigeria, a few days ago, released revised guidelines for the N300bn Power and Airline Intervention Fund (PAIF). It’s unclear how the N300bn will be split between power and aviation from the guidelines but if we assume power is a bigger priority than aviation in Nigeria today, then we can also assume that N100bn of the funds will go towards aviation (my guess).

So the government has committed to spend N100bn on boosting the aviation sector with loans at a maximum of 7% per annum. Fair enough, even though we can argue against this. Now rather than handing the funds raised from the PJ-BAD Levy to FAAN or some govt agency, we can simply create an ‘automatic stabilizer’ linked to the aviation fund (bear with me, I am trying to make this post sound serious hence my use of all these fancy ‘technical’ terms).

Simply, if the PJ-BAD Levy raises N10bn in a year, then the govt will only need to put in N90bn into the aviation component of the PAIF. If the levy raises N8bn, then govt puts in N92bn and so on. The levy thus acts as a ‘stabilizer’ to ensure we still get to put N100bn in aviation.

 

So that’s it more or less. A couple of final points to think about

1. Because the use of a private jet is not illegal in itself, we cannot rely on ‘good’ behaviour to stop people spending their money in this way. This is even worse in situations where the jets are given to Pastors as ‘gifts’. If the members of Church A give their Pastor a jet as a gift and he accepts while the Pastor of Church B rejects a similar gift, does this automatically mean Pastor B is better than Pastor A? Hardly. If Pastor A only just returned from a trip to Australia that involved a 4 hour layover in Singapore and another 6 hours in London, it wont take much for him to accept the ‘gift’ if it is offered to him at that point.

In other words, waiting for people to do the needful might mean we are waiting for Godot to turn up. It wont happen. When no crime has been committed, behaviour is easier to justify. So if we want people to stop doing this, we need to ‘help’ them along in their er, infirmity.

2. What if Subsidy Boys start sharing jets among themselves to avoid paying the levy? Again, fair enough. This is what we want anyway – less private jets. There’s a bigger problem though. What if the Subsidy Boys start buying time on private jets through companies like NetJets (www.netjetseurope.com) ? We might actually end up with a perverse situation where in the name of reducing the number of private jets we actually end up with more flying into Nigeria. Since the Subsidy Boy doesn’t own the jet, he can arrange with NetJets to change his jet once it has entered Nigeria 3 times or clocked up the trigger number of hours to avoid the levy. So we might get 5 different jets enter Nigeria 3 times in a given year with none of them paying the levy.

I suppose such a problem can be solved with a levy on such companies that operate time ownership of private jets who fly into Nigeria.

In summary, PJs are BAD for us as a society, so let’s Levy ’em (See what I did there?). Other than as an obscene display of wealth in a very poor society, it’s hard to make a case as to why Nigeria has so many private jets all over the place. And just like the way okadas proliferated and nothing was done about them, we will soon have them running into each other in the air at this rate.

I’ll be glad to see the back of them. At least until we become a country that creates wealth instead of one that is always looking for the next conspicuous way to spend money.

FF