Fri 2 Mar 2018 – Taxing jet kerosene and applying a value added tax to plane tickets within Europe could raise €26.5 billion ($32bn) a year that could be used to plug an EU budget gap, reduce labour taxes and help meet climate targets, says a position paper by campaign group Transport & Environment. With the EU currently drafting its post-2020 budget and looking for alternative sources of revenue to make up for the UK’s Brexit departure, this is an opportunity to raise revenue from transport for both EU and national budgets while helping to tackle rising emissions from the sector, argues T&E. It calls for reforms of the 2003 Energy Taxation Directive (ETD) and rescinding of the exemption for the taxation of aviation and marine fuels, and require jet fuels on domestic and intra-EU routes to be subject at least to the EU minimum rate of fuel tax, which is currently 33 euro cents per litre. Value added tax (VAT) should also be levied on airline tickets for domestic, intra-EU and even extra-EU flights, says the Brussels-based NGO.
The ETD sets the minimum level of taxation legally permissible across Europe for certain fuels, a key reason being to reduce the ability of member states to lower fuel taxes to encourage ‘fuel tourism’. However, it also includes provisions for states to continue historical exemptions on aviation fuel taxation. The exemption is not mandatory and member states are free to tax aviation fuel for domestic aviation or on a bilateral basis with other member states for aviation fuel uplifted for flights between them. To date, says the paper, few member states have availed themselves of this provision except the Netherlands for the period when there were domestic flights operating.
Potential annual revenues in the largest five EU states are €6.5 billion ($8bn) alone at the minimum ETD rate for their combined domestic and intra-EU flights, while the total across the EU is estimated by T&E at €9.5 billion ($11.7bn). If the cost was to be passed on to the consumer, it calculates this would add €14 ($17) to the average ticket price of an average intra-EU flight. If VAT at 15% was applied to domestic, intra and extra EU air tickets and the cost fully passed through, this would raise revenues of €17 billion ($21bn) per year, with the average one-way intra-EU ticket price of €80 increasing by €12.
“Considering that average ticket prices have fallen dramatically from hundreds of euros over the past decade or so, and by 16% in the past five years alone, these measures are manageable and politically defensible as a means to fund budgets and cover aviation’s unmet external costs, such as climate change and noise and air pollution,” says the paper.
“The VAT and fuel exemptions cause distortions with rail, artificially stimulate demand, drive uncontrolled growth in aviation emissions and constitute unjustifiable subsidies.”
The €150 million ($185m) annual cost of complying with the EU Emissions Trading System does little to address this imbalance, it argues, and points out the ETS directive does not say the scheme can be the only charge on carbon emissions of covered entities. A kerosene tax would also send a price signal to airlines and aircraft manufacturers to increase efficiency, something it says is not being sent by the ETS. “Taxes also can encourage companies to utilise cleaner technologies, promote smarter transport behaviour amongst users and help bridge the price gap with cleaner future fuels,” it adds.
The paper acknowledges tax is a sensitive subject within the EU context and defining tax rates is considered a pillar of sovereignty for many member states. However, the perspective changes when it relates to a European-wide area of interest. “Climate change is a clear example of an issue that requires international action in order to be meaningfully addressed,” it says.
T&E says its position is aligned with 17 eminent European economists – including former Italian prime minister Enrico Letta, ex-WTO head Pascal Lamy and former German finance minister Hans Eichel – who signed an open letter to EU leaders and finance ministers calling for a carbon tax on fossil fuels as well as a kerosene tax and an application of a minimum level of VAT on all airline tickets to help with the post-Brexit EU budget.
T&E’s Freight Policy Officer, Samuel Kenny, commented: “Taxing airline fuel and flight tickets makes sense. Aviation is the quickest and cheapest way to heat the planet while at the same time the transport mode most heavily subsidised by governments. Plugging these tax gaps can both accelerate the fight against climate change and solve the EU’s budget problems in one fell swoop.”
T&E believes the current VAT exemptions could become entrenched as the European Commission wants to give member states greater flexibility on VAT rates. It fears this would effectively mean that for tax purposes, “weekend flying breaks in Europe be treated the same as necessities such as foodstuffs, baby items or pharmaceutical products.”
Said T&E Aviation Director Bill Hemmings: “The Commission proposal is a missed opportunity. Under the definitive VAT regime in 2022, a negative list will be drawn up of goods and services which must be subject to standard VAT rates. Passenger transport and aviation in particular should be added to that list.”
Meanwhile, US airlines are fighting a Senate subcommittee proposal to double the $4.50 Passenger Facility Charge cap, an airport tax paid by passengers through their airline ticket.
“Contrary to the Administration’s historic tax reform package that provided tax relief to all Americans, the average traveller still pays 21% of the total cost of a roundtrip airline ticket to the federal government – the same tax bracket designed to discourage use of so-called ‘sin products’,” wrote six airline CEOs in a letter to Transportation Secretary Elaine Chao.
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