On UK’s to tax or not to tax?

“In a matter of weeks, we in the Caribbean will know whether the UK government is to amend its aviation tax policy.

On UK’s to tax or not to tax?

“In a matter of weeks, we in the Caribbean will know whether the UK government is to amend its aviation tax policy. As you will be aware, we regard the manner in which it levies its Air Passenger Duty as discriminatory as it places the Caribbean in a higher tax band than that for flights to the whole of the United States despite the fact that the majority of US destinations are farther away from London in distance than the tourism dependent economies of our region.

“In response, our governments, the industry, our community in the UK, and the UK industry have joined with us to make our voice heard politically.

“We do not yet know whether we have been successful, but I believe we have put forward a persuasive political and practical argument by suggesting an alternative revenue neutral solution that is more closely aligned with actual carbon emissions.

“Aviation taxation is an issue that has united us. It is in effect a tax on our development. Aviation represents the only realistic way to reach our region from Europe. Despite this, there has been no consultation, no impact assessment, and no sense of partnership.

“I note this as we are now becoming increasingly concerned about the impact of the additional burden that the inclusion of aviation in the EU Emissions Trading Scheme will have from 2012.

“Recent reports produced by Standard and Poor’s, the rating agency, suggest that passengers could face a rise in fares of up to €40 per ticket on long haul flights once EU ETS is introduced. < http://www.ft.com/cms/s/0/5bca82f0-3de2-11e0-99ac-00144feabdc0.html#axzz1FNAIvBSX > This is significantly higher than the figures forecast by the European Commission of Euro 12. We, of course, recognize that much will depend on how the airlines pass on the costs, but this figure is based on the assumption that the cost of carbon traded on international markets will remain relatively low.

“During the course of this meeting we have heard from various speakers about how as Europe has progressively removed its preferential arrangements for our agricultural products, the economies of our region have come to rely ever more heavily on a successful tourism economy. So much so that today when it comes to tourism, the Caribbean is thirteenth globally in absolute size, first in its relative contribution to national economies, and tenth internationally in its contribution to long-term national growth. Moreover, it is the biggest employer after the public sector, the largest single contributor to Gross Domestic Product and was worth in 2010 some US$39.4 billion based on an estimated Caribbean travel and tourism demand of US$55.4 billion, less imported goods and services including travel and tourism spending abroad of US$16.0 billion.

“What is not widely understood is that even if the particular design problems that the Caribbean is trying to address in relation to APD’s banding structure are resolved, for us the tax is the tip of a global fiscal iceberg that we believe may eventually come to include all aviation and maritime transport.

“APD and similar unilateral measures introduced by Austria and Germany, relate to a much broader issue that requires dialogue and a more joined up approach as it touches our concerns about finance, aviation, maritime transport, development, tourism, and foreign relations.

“Behind the previous UK government’s decision to introduce APD is a growing global movement to tax air and sea transport for their greenhouse gas emissions. We, therefore, believe that the EU’s decision to bring aviation into its Emissions Trading System will start a process that will see increasing levels of environmental taxes levied on aviation before any global approach is agreed.

“Aviation and sea transport was not included in the Kyoto Protocol on climate change due to difficulties in assigning emissions to any specific country. However, at last November’s ICAO meeting in Montreal, there was an understanding that a multilateral approach was desirable once general principles have been agreed.

“Unfortunately, aviation taxation in relation to the environment falls into the category of law with unintended consequences. While aviation taxation at a national or EU level can be regarded as a domestic measure, primarily aimed at changing the travel patterns of citizens, it directly impacts upon the development of our region as it has the capacity to negatively affect visitor arrivals and the viability of the industry that underwrites our economies.

“The Caribbean would prefer to see a multilateral measure that treats all airlines and countries equally and that can be linked to development and in particular to the risk the region faces from climate change.

“Our region is one that is most at threat from any change in sea levels as the majority of economic infrastructure is within five kilometers of the sea. As a consequence, we have fully supported climate change initiatives. Are we now to be told that we will have to pay the price of Europe’s concerns about climate change through a tax on our industry’s development with no consequent support in our need to adapt?

“Taxing aviation is not helpful. Europe as a hub plays a vital role in growing the Caribbean tourism business. EU airports such as London, Frankfurt, Amsterdam, Madrid, and Paris act as transit points that facilitate visitors from emerging markets such as China and India, Central Europe, Russia – all of which are new markets we need to open. Aviation is also important to the Caribbean for business and investment. Without sufficient airlift, investors will not put money in to new projects. It is also essential to the Caribbean’s extended community living in Europe who are also voters.

“In noting this I want to emphasize that we recognize that we too need to respond to the increasing burden of taxation on our industry. We need to reorganize our domestic economy in a manner that enables us to fully reap the benefits of tourism in ways that ensure we remain globally competitive.

“What this means is we need to begin to rethink how we approach our productive sector and its role in relation to our industry. By this I mean we cannot see tourism in isolation: as an industry that imports and consumes, without recognizing that it can stimulate our own development in ways that cause it to be less of a burden to government.

“By this I mean that we in tourism and our domestic industries such as agriculture, manufacturing, and services need to reorient our thinking and come to regard our domestic market as larger than our population. We need to understand better that their market is the sum of all of our visitors and residents and as such offers us new development opportunities.

“Put another way, we should be encouraging investment in industries that support the inputs required of our own tourism sector and that of other tourism industries in the hemisphere. In that way we can retain an ever increasing element of tourism revenue, stimulate local economic growth, and broaden our tax base through the income that government receives from corporation and other taxes. In this way, tourism can stimulate domestic growth and in so doing help contribute more to the social services our people expect.

“What I am suggesting is that tourism can drive our economies and speed up recovery from the recession if we begin to think about it in an holistic developmental manner. In this way, in countries such as ours, tourism can support our economic adjustment.

“Our industry has proved its resilience during periods of economic difficulty and its ability to recover rapidly and bring in revenue in the short term like no other industry. We need now to think about how we harness the market created by the hotels and other facilities for the millions of visitors coming to our region can help drive our own economic development.

“The outputs of industry are the inputs of tourism. We need to streamline our industry in ways that help transform our small island economies by ensuring our domestic investors and those internationally who are interested in our region see the bigger advantage this offers the productive sector when the demand our industry creates is better incorporated.

“Put another way, tourism and visitors from overseas can become much more than a simple revenue source for government. They can become the stimulus for our agricultural and productive growth.

“We need to be clear about this and ensure when we complain, as we rightly do, about the ways in which others are now trying to tax our industry through environmental measures, that we have new ideas about the ways in which we can help ourselves.”

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