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ON THE LEFT: More taxes do more harm than good


ON THE LEFT: More taxes do more harm than good

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AIR TRANSPORT IS a cornerstone of the global economy. It ensures the mobility of businesses and people and contributes significantly to economic growth. The sector as a whole represents 3.5 per cent of global GDP and supports almost 63 million jobs. A properly functioning air transport sector is a vital enabler of sustainable economic growth worldwide.

It is widely accepted that the imposition of general business, sales, and income or use taxes levied fairly and uniformly on the conduct of all businesses within a political jurisdiction should be considered the legitimate and sovereign right of governments.

However, taxes and charges on international air transport should only be levied in compliance with International Civil Aviation Organisation’s policies on charges and taxation in a justifiable, equitable and non-discriminatory manner.

Any other form of taxation should be opposed as it has a detrimental impact on the taxing state’s national economy, on airline and airport finances, on consumers and constitutes a material obstacle to the development and expansion of international travel and trade.

A significant increase of unjustified and discriminatory taxes has been witnessed by the industry over the past decade.

However, there have also been several examples of states recognising the detrimental effect of new taxes and thus taking the decision to withdraw them.

Several states have implemented air passenger taxes often portrayed as environmental levies.

In reality, these so-called “green” taxes are simply blunt instruments for public revenue generation and do not deliver any environmental benefit.

Other examples of taxes singling out aviation are taxes levied only on air passengers for aid purposes, so-called “solidarity taxes”.

While for a good cause, these taxes in their current form are discriminatory and should be removed in favour of voluntary schemes.

An increasing trend by various states is to levy taxes on income generated from international air transport and related services in contradiction to applicable bilateral agreements, whereby such income is only to be subject to taxation in the home state (place of effective management) of the airline.

The rationale of most of these unwarranted aviation taxes is to generate additional revenues for the general budget of a country. However, evidence from some countries, as outlined above, indicates that the economic loss from the taxes on the economy as a whole outweighs the expected return from the tax. Overall, taxes on air transport discourage travel, reduce consumer benefit, hamper connectivity, and can retard economic development. The extent of the decrease in air travel depends on the price sensitivity of travellers and shippers as well as the characteristics of the market.

Reduced air transport in a country will result in less contribution from the sector to GDP and employment. The supply chain associated with air transport services will also be smaller as will the other activities supported by the supply chain. And fewer visitors means less money being spent by those visitors in the local economy. Travellers and shippers may switch to other modes of transport, choose other destinations, or refrain from travelling or shipping altogether.

With its speed, reliability and reach, there is no close alternative to air transport for many of its customers. The current proliferation of discriminatory aviation taxes and the trend of state governments to introduce unfair tax schemes or increase existing taxes to make up for budget deficits should be halted.