The following note sets out recent developments in the United Kingdom in respect of Air Passenger Duty (APD) and the proposed Per Plane Duty (PPD)
UK Emergency Budget 22 June 2010
In an Emergency Budget presented to the UK Parliament on 22 June, the Chancellor of the Exchequer, George Osborne, MP, stated:
“The government will explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty, which could encourage fuller planes. Major changes will be subject to public consultation”
No further information was provided but in official documents accompanying the budget statement, produced by the Office of Budget Responsibility , there is a revenue line for Air Passenger Duty. This is projected forwards to 2015-16 shows income increasing from £1.9 billion in 2010 to £3.8 billion by 2016.
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HM Revenue and Customs
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£ billion
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|
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Outturn
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Estimate
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Forecasts
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|
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2008-09
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2009-10
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2010-11
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2011-12
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2012-13
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2013-14
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2014-15
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2015-16
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Air passenger duty
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1.9
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1.9
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2.3
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2.9
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3.0
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3.3
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3.5
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3.8
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In the absence of any comment by the UK Chancellor on the scheduled large increase in APD in November 2010 on travel to destinations in Band C (which includes the Caribbean) it has to be assumed that the UK government will implement these changes as planned.
Taken together these facts suggest:
• The UK government is not sure how to implement a per plane duty but intends keeping some form of taxation on flights at least until 2016 if not in perpetuity.
• The tax is being consolidated as a general revenue line (i.e. not as a transitional environmental measure).
• The UK Government’s forward projections of an airline tax suggest that there will be further increases in the rate at which the tax is levied.
• The tax will run in parallel with the European Union Emissions Trading System (EU ETS), which will include aviation from 2012.
• Travellers to the Caribbean from the UK will be hit with a large tax increase in November 2010.
The position of the UK’s new coalition government
Following the May General Election the UK’s Conservative and Liberal coalition Government proposed that it “will reform the taxation of air travel by switching from a per-passenger to a per-plane duty, and will ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance” , (a UK tax break for lower income families).
According to the UK government, the objective of the switch from APD to Per Plane Duty (PPD) would be to have airlines fly fuller aircraft. Because PPD is levied on a per plane basis it is also intended to apply to private jets and cargo planes, plus UK domestic services.
However, the 22 June Budget Statement indicates that the UK government is less sure about its ability to successfully implement a move to a per plane duty than its previous statement had indicated.
Since that time and the introduction of a banding system the UK has been extensively lobbied by international interests including the US, by the aviation and tourism industry in the UK and by the Caribbean and its Diaspora. In this process one carrier that flies to the Caribbean has suggested that APD be retained but its banding structure be more closely related to carbon emitted and government’s revenue requirements.
The present decision to consult suggests that the method for determining and implementing any new form of flight tax is more complicated than the coalition government had anticipated and points to the growing influence of the lobby from the travel and tourism industry, cargo handlers and others.
Recent exchanges between Caribbean Tourism Ministers with those parts of the British Government better disposed towards the region indicate that sustained lobbying of the UK Treasury by Caribbean Governments and interests and the Caribbean community in the UK might at least in the short term lead to the mitigation of the discriminatory banding system.
Other EU Governments
It should additionally be noted that the German government is to levy a departure tax on all passengers departing from German airports until the introduction of aviation into the EU Emissions Trading Scheme in 2012. The German tax is aimed at raising €1 billion ($1.2bn) annually and although details are still to be released it is expected to add around €8-16 per ticket.
The tax, or ‘ecological air travel levy’, was announced by the government as part of a four-year plan to cut the country’s budget deficit.
“In international air traffic, too, stronger incentives are needed for environmentally-friendly behaviour. However, the introduction of an international tax on aviation fuel does not appear realistic in the short term. Until air traffic is included in the CO2 emissions trading scheme which has already been agreed, a national environmental levy will be charged for all passengers departing from airports in Germany. The levy will be structured to reflect various
factors (such as price, noise and fuel consumption).”
Legal Challenges
The Airline Transport Association of America (ATA) indicated in May 2009 that is was looking at the possibility of a legal challenge to APD, however to date no case has been brought in the UK. The ATA have however, won approval from the High Court in the UK to bring a case in the European Court of Justice against the EU Emissions Trading Scheme (ETS) and plans to include international aviation in the scheme. It is known that the US Ambassador to London wrote to the UK Government on APD last year.
It is not clear whether the measure, if proved to be a general taxation measure, could be subject to a legal challenge at the International Civil Aviation Authority (ICAO). However ICAO have previously stated “Taxes on the sale or use of international air transport are at odds with modern trends towards liberalizing and reducing barriers to trade in goods and services, since such taxes may have the same effect or impact as tariffs on imports or exports. “
Expert advice is required to determine whether there is any basis for a legal action.