Aviation and Tax

Last updated: April 2014



Tax Havens in the Sky


Aoife O’Leary, from the European campaign group Transport & Environment, outlines their latest research on tax lost through special arrangements for the aviation industry.


If global aviation emissions were a country, it would be ranked 7th in the list of global carbon emitters, between the UK and Japan. Yet aviation is the only means of transportation that doesn’t pay a penny of tax on the fuel it burns. This is an unfair advantage that airlines have over trains, coaches and cars, making it the fastest growing form of transport while also being the most carbon intensive. 

In July 2013, Transport & Environment published a report looking into how much of a shortfall government coffers suffer because aviation does not pay two types of basic EU taxes. 

Firstly, though consumers pay an average of 40p per litre on fuel when they fill up their cars, the big aviation bosses pay nothing when they fill up their 747s – leading to a shortfall of between €20 and €32 billion a year across the EU in fuel duty. 

Secondly, aviation doesn’t pay any value added tax (VAT) on airline tickets, the basic tax placed on most other consumer goods across the EU. Every year the EU misses out on over €7 billion – nearly the equivalent of the Cyprus bailout! 

Even these figures do not tell the whole story. The aviation industry also receives direct subsidies through infrastructure support. In the EU, the airline industry receives an average of €3 billion (£2.5 billion) a year to build airports and open new air routes. In the UK, road users directly pay for the road infrastructure through the fuel tax and the annual car tax that every car owner has to pay. 


Market distortions

This further distorts the market in favour of low-cost, high-carbon flights. In addition, airlines also commonly use complicated leasing arrangements for their airplanes so that they can benefit from low tax jurisdictions across the world. 

In 1994 the UK government noticed that aviation did not pay its fair share and imposed a tax - the Air Passenger Duty (APD) on every airline ticket bought. This raises £3-4 billion per year for the British exchequer, equivalent to a third of the UK foreign aid budget. And while this sounds like a lot of money, it is much less than aviation would pay if VAT were imposed on airline tickets. Unfortunately, only a handful of EU countries have similar ticket taxes and they do not come close to the level charged in the UK. 

No prizes for guessing that the aviation industry objected to the APD. The huge accountancy firm, Price Waterhouse Coopers, recently released a study concluding that abolishing the APD would benefit the UK economy. Perhaps, the most telling part of this report is the overview – it highlights the airlines who commissioned the report and explains that the “report was prepared at the direction of our addressee clients and may not include all procedures deemed necessary for the purposes of the reader.”

This appears to be a clear acknowledgement that the report does not contain a fair assessment of the full effects of abolishing the minimal tax that the entire aviation industry pays. On the day the report was released, a spokesperson for the UK Treasury stated that they did “not recognise the figures in this report or agree with the assumptions behind it.” 


Missing revenues

The lack of fuel tax and VAT income means that, in total, EU governments are missing some €39.1bn a year in tax revenues – this works out to almost €80 for every man, woman and child across the EU. Subsidising the aviation industry this way in a time of economic crisis and austerity with youth unemployment rates soaring to unprecedented levels makes no sense and should be reversed. 



Established in 1990, Transport & Environment is the leading NGO voice on smarter and greener transport policies at the EU level in Brussels.View their report ‘Does aviation pay its way?’.



Fuel tax history

An EU law and various bilateral agreements between the EU and other countries exempt international flights from fuel taxes. The Chicago Convention (the international treaty on civil aviation) excludes states from taxing fuel that arrives on board an international aircraft to prevent double taxation. With international aviation in its infancy after WWII, most countries extended 

this exemption to all aviation fuel and enshrined it in dozens of bilateral aviation treaties between countries. These agreements should be reversed.