VAT on aviation

There are discussions in the EU for an introduction of VAT on airline tickets. The motivation for this is not environmental but rather to tax all modes of transport more equally. However, the introduction of a VAT on air-tickets would higher the price for air travel and therefore would contribute to slowing down the growth of air traffic.

The Commission recently launched a study on the VAT regime and its effects on competition in the field of passenger transport. Later this year the Commission will issue a formal consultation paper that will present options for changing unequal treatment for different modes of transport.

VAT ON AVIATION

Background:

In general VAT rates differ from country to country within the EU. Looking at aviation, on domestic flights some countries have a VAT rate, others don't. For flights between member states (and with non-member states) the zero VAT rate is applied for aviation.

Commission Directorate responsible:

DG XXI (Finance).

A copy of a KPMG study on reviewing of VAT regime on transport is available at FoE Netherlands.

Developments:

For several years now the Commission (DG XXI) is planning to harmonise the VAT structures among the different member states. The VAT regime on transport in general has been reviewed in a recent study done by KPMG for the Commission.

A Communication adopted by the European Commission on 31st March recommends, among other things, the introduction of tax measures for the civil aviation sector, including VAT.

Update

According to the Commission's White Paper (adopted at the end of July 98) "Fair Payment for Infrastructure Use: A phased approach to a common transport infrastructure charging framework in the EU" (COM(98) 466 final), under section 5(g) Transport related tax policy:

VAT is governed by a community wide regime under the Sixth VAT Directive (77/388/EEC). It is constructed as a general consumption tax for revenue raising purposes and it is therefore not an appropriate or particularly effective instrument for pursuing non-fiscal goals such as environment protection or transport policy. However, there are significant differences in the way that passenger transport is taxed by the different Member States and also some significant differences in the way that different modes of transport are taxed within Member States. In some cases, the differences in VAT treatment create distortions between competing modes of transport.

Recognising this problem, the Commission launched a study on the VAT regime and its effects on competition in the field of passenger transport. Later this year the Commission will issue a formal consultation paper that will present options for change. The options will need to ensure that EU based transport operators are not disadvantaged in comparison with non-EU based operators and also that, as far as possible, different modes of transport are not disadvantaged in comparison with their competitors. Proposals for change arising from the consultation procedure will need to be prepared and considered in the light of the development of the future common VAT system. Moreover, VAT should not impede the development of public transport services. Clearly, the development and phasing in of Community rules and guidelines on taxation as applying to transport and the phasing in of the proposed transport charging approach should fully respect this and lead to the creation of a truly balanced pricing system for all modes of transport.