TSG Papers - Possible Introduction of Aviation Carbon Tax

On Wednesday 18 July 2019 the Department of Finance published the Tax Strategy Group Papers for Budget 2020. There were 12 papers in total, with one paper focussed on Climate Action where the possibility of Aviation Carbon Tax is discussed.

There has been growing sentiment among some Member States and international organisations that air travel is lightly taxed, both in the context of;

• the taxes applied on other transport sectors; and
• concerns regarding the catastrophic impacts of climate change.

The European Commission estimates that direct emissions from aviation account for:

• 3% of the EU’s total greenhouse gas emissions
• More than 2% of global emissions

While airlines are part of the ‘EU Emissions Trading System’, aviation fuel used for the purposes of intra-EU and international commercial transport is not subject to any excise duties. Therefore, in Ireland, aviation fuels are exempt from excise duties (or ‘mineral oil tax’) when used for the purposes of international commercial flights.

The principal argument in favour of the introduction of aviation taxes is that they are required to account for the negative externalities generated by the sector, principally in the form of:

• air and noise pollution,
• and to support efforts to reduce global greenhouse gas emissions.

At ECOFIN in February 2019 The Netherlands opened discussions around a proposal for an EU-harmonised approach to taxation and carbon pricing in the aviation sector. Many Member States welcomed this discussion and following the positive response, the Netherlands hosted a high level conference in June 2019 furthering these discussions.

A number of EU Member States already have aviation taxes, or have indicated their intention to introduce same:

• Austria, France, Germany, Italy, Norway, Sweden, and the UK all presently operate aviation taxes (based on passenger departures).
• Sweden’s air travel tax was introduced in April 2018
• Netherlands have legislated for an air travel tax to be introduced in January 2021, though has indicated that its first preference is to apply an air travel tax through an EU wide aviation tax structure.
• Belgium have made preparations for the possible introduction of an air travel tax in 2021.

Earlier this month, the Tax Strategy Group outlined the potential amongst EU Member states of an EU-harmonised carbon tax. Given the apparent momentum this is gaining; it is an issue that warrants serious consideration from an Irish aviation perspective looking forward into 2020.

BDO are closely watching this issue and monitoring its progression. For more information, please contact either Carol Lynch [email protected] or Angela Fleming [email protected].