Q&A: What will air taxes mean for your pocket?

European Union taxes may add 30% to air fares, suggests Economist Colm McCarthy

As it stands, no VAT is charged by EU member states on airline tickets. Photograph: iStock

As it stands, no VAT is charged by EU member states on airline tickets. Photograph: iStock

 

The trend of ever cheaper air travel could be coming to an end with several taxation measures proposed at EU level. According to Irish economist Colm McCarthy the effect of these could add €30 to an air ticket that now costs €100. This would be the impact of tax on jet fuel and VAT on tickets.

What’s the current position?

Irish consumers have largely avoided onerous taxation on air travel for more than five years now. In 2013, the State announced it would stop taxing air travel from 2014. The tax before that, you may recall, was €3 on tickets for passengers departing from Irish airports.

So what’s this about the imposition of taxes?

As it stands, no VAT is charged by EU member states on airline tickets. But the Netherlands and France in particular have been calling on fellow Europeans to end the tax exemption on plane tickets as well as considering taxes on jet fuel.

A report leaked to the Financial Times in May this year suggested the application of 33 cent a litre on jet kerosene – a form of carbon tax that could cut the sector’s carbon emissions by 11 per cent. That alone would add 12 per cent to tickets.

Ending the VAT exemption could bring the total increase to 30 per cent.

When is this likely to happen?

We don’t know. It’s unlikely to be this year or even next as the member states look to hammer out an EU-wide agreement. Some EU states have vowed to plough on alone with the imposition of taxes if the bloc as a whole doesn’t take action but the Republic is not part of that group.

Mr McCarthy said it could take 10 years to agree and impose these new taxes.

How much would such a tax raise?

In its last full year of operation, the air travel tax raised €34.9 million. Former finance minister Michael Noonan, responding to a Dáil written question back in 2017, suggested that – at the €3 per passenger rate – it might bring in between €45 million and €50 million for the State this year if it were resurrected. At a time when increased funding for climate measures is required, eventually this could be too good to pass up.

What are airlines doing to offset emissions?

Increasingly common is a voluntary contribution, whereby passengers pay an additional €1, for example, which the airline will then forward on to pay for carbon offset measures. However, a study from the Stockholm Environment Institute in 2015 looked at a sample of carbon credit projects and found that 73 per cent of offsets generated did not represent additional emissions reductions. In other words, they would have happened anyway.