EC should make tax fairer by extending VAT to air travel

16th May, 2011

AEF has responded to an EC consultation on VAT reform, arguing that aviation should be subject to the tax. Currently it is exempt from both VAT and fuel tax.

A major strand running through the consultation is the desirability of charging VAT on the widest possible range of goods and services, so that necessary Government revenue can be raised without needing to impose too high a rate. Having high taxes on some items and none on others distorts the economy and is thus an economic disbenefit to the EU and its member countries.

AEF has highlighted the anomaly whereby VAT is not charged on aviation, a situation for which there is no social or economic justification. We recognise that charging VAT on air travel is more difficult than for some other products and we therefore consider it important that the EU shows determination in making this reform.

VAT is not designed as a means for influencing behaviour or reducing environmental impacts; it is intended to be a neutral revenue-raising tax. However, charging VAT on air travel would have beneficial social and environmental impacts.

Click here for our full response to the consultation.