Dutch query aircraft fuel tax regime

Date: 06/03/1997

By Michael Mann

EU TRANSPORT ministers will next week ask the European Commission to examine whether aircraft fuel should continue to be exempted from normal rules on taxation.

Although the current derogation is governed by international agreements under the Chicago Convention, the tide of opinion is increasingly moving towards forcing airlines to compete on the same basis as other transport sectors.

Already, moves are afoot within the International Civil Aviation Organisation (ICAO) to levy taxes on aircraft fuel, for environmental reasons as much as anything else.

EU environment ministers first raised the issue back in December 1994. Now Dutch Transport Minister Annemarie Jorritsma has drafted a resolution asking the Commission to report on the probable effects on both the airline sector and the Union's environment of abolishing or modifying the exemption.

The draft resolution will be discussed by transport ministers at their meeting next Tuesday (11 March). But a final decision will rest with finance ministers, who are likely to link the issue to Commission plans to extend the minimum excise duty regime to the full range of energy products.

In a clear indication of the likely unpopularity of taxing aircraft fuel, the draft resolution asks the Commission to study “the consequences for the competitive position and profitability of the EU air transport sector”.

It also hints at a likely shift in fuelling operations to non-EU countries, with probable “adverse environmental effects”, if the Union chooses to go it alone in ending the exemption.

Karl-Heinz Neumeister, secretary-general of the Association of European Airlines, said his members would be far from enthusiastic about any moves to increase the financial burden on them. But he added that he could “support an objective study” into the advantages and disadvantages.

“If the benefits enjoyed by airlines are going to be removed, we would ask for a study into the subsidies enjoyed by other transport modes. The figures for rail would shock you,” he said.

The Dutch paper is sensitive to this, stressing the need to look at the privileges meted out to various forms of transport.

Officials believe that a group of northern EU governments would be happy to consider an end to the derogation for air-lines, but stress that it would be preferable for this to be agreed in an international context within the ICAO.

But other member states with ailing national airlines are likely to oppose any such move.

“Another group, basically the southern member states and France, are pretty unhappy, feeling it could impinge on the competitiveness of their airlines,” said an official.

The Commission will have to present finance ministers with its full report by the end of the year.

Meanwhile, senior advisers to the Commissioners decided this week to postpone once again a decision by the full Commission on proposals to raise minimum tax rates on motor and heating fuels, and extend the excise duty regime to electricity and natural gas, amid internal divisions over the plan.

Some Commissioners have expressed concern about the impact of the proposals on individual sectors. But Taxation Commissioner Mario Monti defended the move this week, insisting it was not aimed at increasing taxes overall as it should be accompanied by equivalent reductions in labour taxes.