Effect Of Duty Free Abolition On European Travel Operators Exaggerated

by Robert Lee, Tax-News.com, London

15 March 2002

Recent reports have revealed that the fallout from the abolition of duty-free sales of tobacco and alcohol within the European Union in 1999 may be less drastic than predicted at the time.

Ferry operators and airlines predicted massive job losses and substantially decreased revenue as a result of the changes, which were brought in to reinforce the idea of a European single market. However, it seems that the market may not be so single after all, with several intra-European travel operators reporting that other EU tax anomalies have allowed them to increase profits.

Speaking to the Financial Times on Wednesday, P&O Stena Line Managing Director, Russ Peters, revealed that the company now sells around 15% more in all categories on its ships than it did before duty-free shopping was abolished. The reason for this, according to the P&O boss, is the fact that French excise duty - which a ferry operator is permitted to charge once the vessel is 20 minutes out of a UK port - is much lower than the corresponding UK duty, and there are no restrictions on the amounts which can be purchased.

'French excise rates gave us the excuse not to just lie down and die,' Mr Peters told the newspaper.

Ferries travelling between Finland and Sweden have now incorporated the island of Aland, which has special tax status, into their routes in order to continue selling goods duty free, and Spanish airlines - which are not subject to the bureaucratic hurdles placed in front of foreign carriers travelling to Spain - are taking advantage of the country's low excise tax rates, and are reportedly blooming.

However, according to the FT report, ferry operators and airlines travelling between countries where the difference in excise rates is not so marked have not shown such good results post-duty free, although it is difficult in some cases to separate losses which have resulted from the abolition of the tax break, from losses which would have occured as a result of other factors which are depressing the travel market.

One possible solution, according to the UK Travel Retail Forum, would be to impose a single excise tax rate for all intra-European travel routes. However, with some industry players profiting substantially from the existing excise tax anomalies, a united front on the issue is likely to prove difficult to achieve.

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