Portugal lost 1.2 thousand ME with tax benefits and exemptions to airlines – Zero

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Portugal lost 1.2 billion euros in tax revenue due to “under-taxation” of airlines in 2022, according to a study released today by the environmental organization Zero, which argues that the polluter pays principle should apply to the sector.

The “tax free” to aviation in Portugal, says Zero in a statement, means that the revenues actually collected (through the carbon tax of two euros per ticket, for example) in the country represent “only 10% of what they should represent”, below the 16% registered at European Union level.

In a statement releasing a new study on how much the tax benefits and exemptions of air travel in the EU, UK, Norway, Switzerland and Iceland are worth, Zero, which is part of the European Federation for Transport and Environment, says that in 2022 the tax gap between what was and what should be collected amounts to €34.2 billion in the set of countries considered.

“In the European Union, which only collected around €5 billion in aviation taxes and fees in 2022, that figure was €26.4 billion – meaning the EU last year only collected around 16% of the revenue it should have collected,” the document states.

This is due to the VAT exemption (or reduced rate) for ticketing, the tax exemption for jet fuel and the free allocation of carbon dioxide allowances.

“Under-taxation” and “under-regulation”, which Zero says are “chronic” in the aviation sector, and which “discourage it from investing in less environmentally damaging technologies and make travel artificially cheap, increasing demand”.

“If this privileged tax status is maintained, air traffic and emissions will continue to grow unsustainably,” the environmental organization anticipates, recalling the commitment to reduce carbon dioxide emissions by about half by 2030.

According to the same data, in addition to the loss of tax revenue, the granting of tax exemptions and benefits to the aviation sector also leads to an increase of 34.8 million tons of carbon dioxide emissions into the atmosphere.

“By 2025, if national and EU governments do not end these benefits, the tax gap will grow to €47.1 billion in Europe, and €35.7 billion in the EU,” he says, noting that this also means a “growing gap in carbon dioxide emissions reduction”.

In the case of Portugal, says Zero, the “tax free” that in 2022 amounted to 1.2 billion euros, will reach more than 1.4 billion euros, if there is no review of the benefits granted to airlines operating in the country.

In an overview of the situation in Portugal, Zero points to the tax exemption on aviation fuel, the VAT exemption on tickets or the application of the reduced rate of 6% on continental domestic flights or the “inexpressive fixed carbon tax of two euros per ticket”.

According to Zero, TAP alone benefited in 2022 from 450 million euros in tax exemptions and subsidies, of which “270 million euros directly from taxes on fuel and carbon pricing and 180 million indirectly from VAT and fees that its passengers benefit from”.

For the environmental association, it is therefore urgent to apply the polluter pays principle in aviation, putting companies and passengers “to pay for all the climate and environmental damage they cause”.

Thus, it argues, in the short term, Portugal should apply rates that allow it to reduce the tax ‘hole’, with Zero specifying that the rate should be, on average, around 20 euros per domestic trip, 48 euros per intra-European trip and 281 on intercontinental flights, and considering a differentiation in value depending on the number of trips per passenger.

For Zero, the application of the polluter pays principle in aviation implies that airlines and passengers “should pay for all the climate and environmental damage for which they are responsible – for example, by paying for air conditioning in schools and hospitals due to hotter summers”, and should also be partially channeled into investments in less polluting fuels and transport alternatives.

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