Tax exemptions in the aviation sector have lost European governments €34.2 billion in missed revenue last year, equivalent to about €4 million every hour, a new study by green group Transport & Environment (T&E) finds.
The analysis looks at the revenues that should have been raised from air travel pricing if the sector did not benefit from exemptions. It compares these revenues with those that were actually raised in a year. This is defined as the ‘tax gap’. The sector pays no kerosene taxation, little to no ticket taxes or VAT and a carbon price on intra-European flights only.
Europe is bleeding money by not taxing the aviation sector. Airlines are edging close to record profits this year, whilst spewing dirty fuels in our skies. But governments are unwilling to touch their precious national carriers.
Jo Dardenne, aviation director at T&E
“Taxation should not be perceived as a punishment but as a way to fairly charge those who benefit most from aviation’s under-regulation. Those better off in society have been paying far too little for their flying habits”, said Jo Dardenne, aviation director at T&E.
The UK and French governments would have cashed in an extra €5.5 and €4.7 billion if aviation was taxed adequately, the group argues. The four European countries where the tax gaps are the largest are the UK, France, Spain and Germany, mainly reflecting the size of their aviation sectors. Although France, Germany and the UK levy a ticket tax, their low levels of ticket taxation are not enough to fill the gap.
Air France and Lufthansa are the two biggest contributors to the tax gap in Europe, due to the size of their activity. Europe lost out on €2.4 and €2.3 billion of revenue from these airlines’ activities. The study differentiates between charges on passengers and on airlines. Ticket taxes and VAT are imposed on passengers, whereas fuel taxes and carbon pricing are directly attributable to airlines. Of the €34.2 billion gap, €20.5 billion should have been paid by carriers in fuel taxes and carbon pricing.
As the sector is set to grow in coming years, T&E estimates the tax gap will increase by 38% by 2025. Eurocontrol estimates that traffic will reach 92% of pre-Covid levels in 2023 and a full recovery by 2025, the tax gap would then reach up to €47.1 billion.
Closing the gap and addressing aviation’s under-taxation should be an utmost priority for governments, the group urges. The study recommends applying a fuel tax on kerosene, a 20% VAT rate on tickets and extending the carbon market for aviation to all departing flights. These changes would help to close the gap in government budgets. In the absence of these measures, T&E recommends applying a ticket tax equivalent to the gap in each country.
The study shows that higher taxes will have an impact on passenger ticket prices. This could result in a decrease in demand and CO2 emissions savings, arguing that ending exemptions in 2022 would have saved 35 Mt of CO2, with an even higher total climate impact accounting for non-CO2 effects of aviation.
This is the second major jab T&E takes at the aviation sector this summer. In June, another study from the group suggested that the fuel industry in Europe lacks transparency and uses an increasing amount of animal fats, which “will hurt the planet“. Their worries however seemed unfunded as the EU Renewable Energy Directive already regulates which kinds of fats are allowed to be used for biofuel production. “Their [T&E’s] assertion does not reflect the reality of the EU market”, John Cooper, Director General of FuelsEurope remarked at the time.
