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Caribbean Urges Change To UK Flight Tax

by Jason Gorringe,, London

17 November 2010

The Caribbean Tourism Organization has noted the publication of a report that comprehensively analyzes the impact of the UK's aviation tax, the Air Passenger Duty, on the tourism industries of Caribbean territories.

The report advocates review of the current system in place in the UK, which has been said to disproportionately disincentivize passengers from purchasing flights to destinations such as the Caribbean, and to impose inequitable taxation on near-equidistant destinations.

The report - 'The Impact of Air Passenger Duty and Possible Alternatives for the Caribbean' – was compiled by the CTO at the request of the British Treasury as a follow up to a delegation of six Caribbean tourism ministers' visit to London in September to lobby against the increasing tax burden being placed on flights from the UK to the Caribbean.

The CTO's report argues for the revision of the UK regime, and states that by introducing a two-tier levy – through the division of the world into two zones - taxation on flights could support the Caribbean industry while imposing new tariffs that are more closely tied to flights’ environmental impact, on the basis of the distance traveled and aircraft's carbon emissions.

Under the current system in the UK, Air Passenger Duty is added to the price of passenger tickets under a four band system.

Following hikes to rates on November 1, 2010, Band A tax on premium class short-haul flights - levied on flights of up to 2,000 miles - increased to GBP24, with economy class seats tax at half this rate.

Flights to the Caribbean fall within the third band, Band C, behind flights for instance to Australia. Fares to the Caribbean are taxed at a rate of GBP150 for premium flights, and GBP75 for coach class flights. Meanwhile premium flights to Australia, which are roughly double the distance, are subject to tax of GBP170 while economy class seats are taxed at half this rate.

Flights under the remaining band, Band B – placed on flights travelling between 2,001 miles and 4,000 miles – are subject to tax of GBP120 and GBP60 per person, for premium and economy class, respectively.

The report in particular finds that while Band A flights account for 45.5% of carbon emissions, these flights contribute just 36% of the total tax take.

Arguing for a systemic change in the calculation of tax on outbound UK flights, the Chair of the CTO and Minister for Tourism for the Caribbean territory of Saint Kitts and Nevis, Richard Skerritt, said:

“The APD tax is clearly a barrier to travel and tourism and we are not happy about any aspect of it. During our visit in September the British government asked us to provide evidence of the impact of this tax on our tourism industries and to suggest an alternative approach, but one that would be revenue neutral. Our report clearly demonstrates that British visitors to the Caribbean from the UK are declining while traffic to other countries has been on the increase. The UK is the only major source market to have registered a decline in visitors to the region in the first quarter of 2010.”

“This tax is discriminating against long-haul travel. It’s also hugely unfair because it penalizes destinations where there is no alternative to aviation travel. If you tax flights to France from the UK, passengers can choose to reach their destination by ferry, car or rail. The Caribbean doesn’t have that luxury. The tax is damaging thousands of peoples’ livelihoods in countries around the world and the British government needs to do something immediately. We’re now urging them to consider a simple rebanding of the whole process.”

Citing statistics published by HM Revenue and Customs for Q1 2010, and current APD rates, the CTO has said that the government could maintain revenue levels and rescind band C and D in a revenue neutral manner if it increased band A rates nominally, by GBP1. Under its proposals flights previously subject to band C and D tariffs would then be subject to the tax rates of band B. The Organization further recommends hiking Band B coach class rates in addition, “to make rates more proportionate to flights’ carbon emissions”.

Using the aforementioned sample, the CTO demonstrated that foregoing revenue from band C and D, and instead levying a duty similar to current band B rates on all flights greater than 2,000 miles would cost the government GBP11.44m. This could be more than compensated by the organization’s proposals, which, based on the sample quarter, would have generated GBP14.22m in revenue.

Hugh Riley, Secretary General and CEO of the Caribbean Tourism Organization, concluded:

“Many countries around the world are now concerned about the impact of such heavy taxation on tourism which generates such economic benefit. We are proposing a revenue neutral way to change the tax bands so the British government can still collect revenues but not at the sake of damaging many fragile and tourism dependent countries around the world.”

TAGS: environment | tax | business | air passenger duty (APD) | Bahamas | Montserrat | Netherlands | Saint Lucia | Saint Vincent and the Grenadines | aviation | international financial centres (IFC) | Aruba | Cayman Islands | Grenada | Jamaica | Trinidad and Tobago | Turks and Caicos Islands | United Kingdom | Virgin Islands | offshore | tax rates | Anguilla | Antigua and Barbuda | Netherlands Antilles | Saint Kitts and Nevis | revenue statistics | Barbados | British Virgin Islands

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