The government sought to defuse a row with war veterans by pledging an extra £800,000 grant to settle a tax bill on a memorial.
The £6 million needed for the tribute in London's Green Park to the 55,573 RAF bomber crew who lost their lives during the Second World War was raised in donations - mainly three wealthy individuals.
But the organisers were last year hit with an extra bill for VAT on the professional services they used in making it happen following the scrapping of a previous charity exemption.
Campaigners for the Bomber Command Memorial, including Bee Gees singer Robin Gibb, have been calling on ministers to waive the charge - but the government insisted that was not possible.
Ministers have now ordered instead however that an additional grant will be made available from an existing government fund for memorials to cover the tax bill.
It brings the total taxpayer support for the project to just over £1 million.
Prime Minister David Cameron said: "The 55,573 bomber crewmen killed in World War II made the ultimate sacrifice in the defence of our country.
"I'm delighted there will now be a permanent memorial to these heroes and that the government grant will help to cover the tax bill."
Heritage minister John Penrose said: "The sacrifice made by everyone who served, and the many who lost their lives, with Bomber Command during the war humbles us all.
"Their courage and heroism helped win the war, so it is absolutely right that this should be marked with a permanent memorial.
"These Government grants will settle the tax bill that the campaigners will have to pay, so the public's donations will all go to fund the memorial, rather than to the taxman."