Should we tax aviation more?

Anticipating the 2024 Autumn Budget, the Treasury invited interested parties to “submit comments on existing policy for consideration in the Budget”. In response, AEF submitted its views on aviation taxation.

Historically, the aviation industry has always benefitted from little or no taxation, with the exception of Air Passenger Duty. This is unusual, especially when compared to other transport modes. Motorists pay tax every time they fill their cars with fuel, and VAT on any food item or product they pick up at a motorway service station. In contrast, no tax is levied on airline fuel and many of aviation’s products. If aviation paid tax and VAT on its fuel at the same rate as motorists pay on theirs, the potential revenue would amount to over £12 billion a year. 

Should the Treasury choose to tax the aviation sector more, it would not only ensure aviation pays its fair share, but also create a potential tool to help deliver some of aviation’s climate commitments.

How should we tax aviation?

Currently, Air Passenger Duty is the only aviation tax, generating revenues of £3.845 billion in 2023/24.

Here are the possible methods for increasing tax on the aviation sector:

Increase Air Passenger Duty (APD)

The UK Government could update APD rates, or increase the duty for specific bands for private jet and premium passengers. This rate could increase further on routes where there is a viable train alternative.

Kerosene tax

The UK Treasury could apply tax to every litre of kerosene uplifted at UK airports or it could be applied to segments of the industry e.g. private jets. Under the terms of the Brexit agreement, the UK can apply tax to aviation fuel on EEA routes without the need for international agreement.

Add VAT to airline tickets

This would work similarly to increasing APD, with the UK Government modifying the zero-rated VAT schedule that pre-exists on plane tickets.

Frequent flyer levy or air miles levy

This tax could be added at the point of sale for outbound flights, either through a central registry of flights booked or through an individual reference number issued to customers. For every additional flight per year, the tax increases. The tax applies either to the number of flights per year, or the cumulative distance of ‘air miles’ travelled.

Private jet tax

The UK Government could create a new tax, potentially delivered through APD or VAT, specifically focusing on private jets. There could be possible tax exemptions for fully electric private jets. 

For more information and further reading on the potential methods for aviation taxation, take a look at our letter to the UK Treasury.

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