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Hong Kong Airport "Should Expand Without New Tax"

by Mary Swire, Tax-News.com, Hong Kong

10 March 2015


The International Air Transport Association (IATA) has voiced its support for the construction of a third runway at Hong Kong International Airport (HKIA) but emphasized that it should be financed by borrowing, and not through taxation.

Establishing a three-runway system at HKIA is estimated to cost HKD150bn (USD19.3bn). IATA has outlined a framework that would allow this "critical" infrastructure to be built "without increasing airline charges, without placing a burden on taxpayers, without making it more expensive for travelers, and without adding an extra burden to shippers, while increasing competitiveness of the hub's air transport network."

The IATA warned that a hypothetical ten percent increase in user charges for existing airport facilities could lead to annual reductions in passenger numbers by up to 80,000 and jeopardize 600 jobs. Tony Tyler, IATA Director General and CEO, called the idea of raising charges from existing infrastructure "wrong in principle and unfair" and likened them to charging a toll for a bridge that is not yet built.

The IATA pointed out that HKIA is consistently profitable and has very little debt, making it easy to fund its expansion through borrowing through commercial loans or bond issues. The current level of charges (applied to both existing facilities and newly built infrastructure) would provide sufficient revenue for loan or bond repayment, IATA said.

Tony Tyler, IATA's Director General and CEO, said: "Airlines fully back the user-pays approach on infrastructure development. We are not asking for anyone to foot the bill for our growth. Airlines would pay for the infrastructure through increased volumes, not increased charges. And that would apply to existing infrastructure as well as newly built facilities. The growth in traffic that the extra runway and terminal will bring will see the airport's success over its first 17 years repeated all over again – provided its airport charges are kept competitive."

"While the new facilities are being built, the airport's dividend to the Government will reduce. Any normal business faces the same situation when it makes a major capital expenditure to support its future success. No legitimate return ever comes without some up-front investment. And let's remember that the airport's value to Hong Kong was never intended to be only in the profits it generates. In fact, its role as a catalyst for economic activity makes a much broader contribution to the community and the Government."

TAGS: tax | investment | business | air passenger duty (APD) | aviation | international financial centres (IFC) | offshore | Hong Kong | construction

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