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UK plans to hike tax revenue from long-haul flights under net-zero emissions drive

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UK plans to hike tax revenue from long-haul flights under net-zero emissions drive

Highlights

Considering expanding flight distance bands

Rejects calls for frequent flyer levy

UK is major demand center for jet fuel

London — The UK government is planning to boost tax revenues from long-haul flights as part of the country's commitment to achieving net-zero greenhouse gas emissions by 2050.

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A consultation on potential changes to the UK's Air Passenger Duty (APD) would increase the number of international travel distance bands used as a proxy for the emissions of respective flights from London.

"This would reinforce the 'polluter pays principle,' by ensuring that those who travel furthest internationally, and consequently have the greatest impact on the environment, incur the most duty," the UK's finance minister said March 23.

Already considered as one of the highest aviation tax levies in Europe, APD is charged on seats for passengers over 16 years old boarding a flight from a UK airport. Airlines charge the tax as part of the ticket price and then pay it to the government.

Under the current system, APD is levied under two distance bands: a short-haul band, where the distance from London to the destination country's capital city is is up to 2,000 miles, and a long-haul band, where the distance is over 2,000 miles. The ministry said it is considering expanding this to either three or four distance bands.

The ministry said it also plans to retain APD as the principal tax on the aviation sector and not introduce a frequent-flyer levy as a replacement which has been called for by green groups to tackle the environmental impacts of flying.

Domestic tax cut

In addition to helping to meet environmental objectives, the increase in tax on some long-haul flights would also help fund a proposed reduction in APD on domestic flights within the UK, the ministry said, to boost domestic air connectivity.

Europe's second-biggest economy, air travel to and from the UK is a key proxy for European jet fuel demand. The UK's demand for jet and kerosene slumped to 178,400 boe/d due to the pandemic last year, down from 334,900 boe/d in 2019, according to S&P Global Platts Analytics.

Almost all EU jet fuel is imported, while UK production of jet fuel and kerosene for heating covers almost half the country's needs.

The government expects that revenues from the current APD will raise just GBP600 million ($827 million) in the 2020-2021 tax year, down from almost GBP3.7 billion in the previous tax year after pandemic lockdowns hit travel.

Earlier this month, the UK government announced that rates for long-haul economy services from Great Britain will increase in line with inflation by GBP2, to GBP84 per passenger from April 2022. Duty on premium, business and first-class seats will rise by GBP5 to GBP185 in total. Long-haul APD rates are already being raised from next month.

The UK's aviation tax reform consultation closes June 15.