India has come under criticism for imposing fresh taxes on international air travellers in the current budget, with global aviation experts terming it as an easy “financial grab” that would affect the economy in the long run.
“While taxes provide a tangible short-term revenue boost to the government coffers, increased taxes in the long term can be outweighed by the cost to the underlying economy”, said an aviation finance specialist, Charles Tyler.
“Germany, India and Austria are not claiming their taxes are environmental. They are simply a financial grab on behalf of the respective government”, he said in the latest issue of IATA journal ‘Airlines International’.
Tyler pointed out that India “has been increasing its taxes on air tickets, which is negatively affecting the Indian civil aviation industry.
“Despite campaigns that stated that the tax contravenes International Civil Aviation Organisation (ICAO) policies, the Indian Finance Ministry extended airline taxes to all classes of domestic and international airline tickets”, he said, adding that earlier such a tax was levied only on premium class international tickets.
“These taxes were capped, but the Indian Finance Ministry is seeking to remove these upper limites, thus increasing the taxes further,” he said.
Tyler also targeted the German, British, Austrian and the Dutch governments for imposing high aviation tariff, saying it was having an impact on the air traffic demand in these countries with many travellers preferring to take international flights out of neighbouring nations where the tax rates were low.
“Taxing aviation produces short-term cash benefits, but destroys one of the most beneficial economic catalysts that an economy can have,” Jeff Poole, Director (Government and Industry Affairs) of the International Air Transport Association (IATA) said.
The criticism was in line with IATA’s recent move to put India, along with the European Union, UK, Germany and Austria, on the ‘Wall of Shame’ for imposing high taxes, with IATA chief Giovanni Bisignani asking these governments not to kill “the goose that lays golden eggs”.
“Taxing aviation does not pay. The Dutch government repealed a USD 412 million departure tax because it cost the Dutch economy USD 1.6 billion. Similarly, the Irish Government is planning to cancel its USD 165 million Travel Tax because it has cost the economy USD 494 million and 3,000 jobs,”
Bisignani said at the recent IATA summit and annual general meeting in Singapore.
The Massachusetts Institute of Technology (MIT) is carrying out a detailed research called the Global Airline Industry Program, under which it is working on the Airline Ticket Tax Project.
The MIT project points out that the average effective tax rate across the globe for 2009 rose to 16.7% in comparison to the 2008 tax rate of 15.5%. And, the rate continues to move upwards, even as the ticket prices or base fares declined, it showed.