Cross Country Survey of Tax Burden on Aviation

Cross Country Study of Tax Burden on Aviation

Air
transportation is a crucial enabler of a country’s economic
activity. It facilitates the movement of business personnel, serves
as a key input into fast-growing industries such as tourism, and
allows the vital interactions necessary to sustain many modern,
high-technology, service industries. It performs a central role in
meeting the evolving trading needs of the country, as
internationalisation and globalisation become increasingly important
to the nation’s economy.

In
addition to its economic role, air transportation serves important
social functions, not only meeting the access needs of remote, small
communities, but also facilitating continuing contact between members
of geographically dispersed families—an increasingly common
feature of modern society.

Taxes serve a purpose

The
government requires revenue to fulfill its numerous functions, and
there is no reason why the air transportation sector should not, in
an appropriate way, contribute to the national treasury. The nature
of air transportation, however, superficially makes it a convenient
subject of indirect taxation. As a high-revenue (though not
high-profit) sector with relatively few suppliers, aviation tax
collection is inexpensive and convenient for the exchequer. And as an
industry air transport is politically vulnerable, lacking any large
voting block to protect its interests. The crucial issue for the
airlines (and the public more generally) is thus not taxation per se,
but rather its level, structure, and impact. Because it is somewhat
concentrated — which makes revenue gathering relatively cheap
for the collection agency — and often perceived as a provider
of a luxury service, the airline industry is especially vulnerable to
high levels of taxation.

These
factors sub-optimally limit the growth of the air transportation,
because ultimately taxes are either passed on in the form of higher
fares and cargo rates or reduced levels of service, especially in a
highly competitive environment. In the short term, particularly in
today’s marketplace for air services, the taxes are not passed
on but rather absorbed by the airlines in the form of weakened
financial results. Yet even when the airlines bear the immediate
burden of taxation, businesses and individuals must adjust downward
their levels of service, either in quantity or quality, to be able to
absorb the tax.

There is
also an ingrained common perception, largely misplaced in the
twenty-first century (with the widespread availability of the
services of low-cost air carriers), that taxation of air
transportation constitutes a tax on a luxury good. This is simply not
true. Today nearly 40 percent of airline trips are taken on low-cost
carriers.

Taxation
invariably distorts markets. Therefore, a well-structured tax regime
should minimize the distortions that it imposes downstream on the
various sectors of the economy. In the context of airlines, these
distortions take a number of forms:

• the
  taxation of airlines if disproportionately high, retards the
  industry’s development vis-à-vis the overall growth in
  the economy, and limits its potential contribution to economic well
  being;
  

  
  

• inappropriate
  level of taxation distorts competition with other transport service
  suppliers;

  
  

• the
  structure of taxation imposes burdens further up the air-services
  value chain, thus imposing additional costs on the airlines and
  their customers;

  
  

• taxation
  influences the competitive position of domestic airlines versus
  international competitors in increasingly global air transport
  markets.

  
  

Inappropriate
taxes, either in terms of their magnitude or their form, can
seriously distort the market for air transportation services. Because
the demand for airline products is often derived from the final
demands of society for goods and services, as well as from the desire
for individuals to travel for leisure purposes or to meet friends and
relatives, distortions to ticket prices have the potential of
adversely affecting national output and the larger welfare of the
country. In particular, they penalise those industries most reliant
on high-speed, scheduled transportation—industries generally
having the greatest potential to improve and sustain the nation’s
economic well-being. In this context this study aims to analyse
objectively the tax burden on Indian aviation.

In
considering the structure of the taxation regime, it is useful to put
the aviation taxation system within the more general framework of
taxation. One of the main problems encountered in the past when
reviewing aviation taxes are that they were seldom assessed as an
entity. Rather, marginal changes have been critiqued, or additional
taxes commented upon. It is thus within general taxation principles
that aviation taxes are examined here.

Taxation
involves the compulsory transfers of monies from the general public
(individuals and companies) to the government. It takes a diversity
of forms, but all affect consumption levels, profits, incentives and
welfare distribution. Taxation can occur at any point in the circular
flow of income (consumption, expenditure, investment, international
trade), but where it lies and the form it takes affects the level,
speed, and distribution of this flow between companies, households
and government.

Taxes on
income and wealth are direct taxes, whereas those on consumption are
indirect taxes. Aviation taxation is largely an indirect tax paid to
the authorities by the provider of airline services, but the
incidence of the taxation is borne more widely, as part of the burden
is passed on to travellers and shippers. The amount passed on depends
on the conditions of supply and demand in the relevant transport
markets. During times of intense competition for budget-minded,
internet-empowered customers, such as the present, the economic
incidence of the tax shifts principally to the airline, rather than
the consumer.

When
there are few economies of scale on the supply side and the market
for a product is highly competitive, the incidence of any tax is
largely pushed down to the consumer in the form of fewer services.
Any initial attempts by airlines to push up fares tend to be eroded
by competitive pressures. If airlines cannot pass on the full burden,
potential users of air services will find the available quantity and
variety of services to be reduced, as some carriers leave the market
and others adjust operations in light of the higher costs they now
incur. This reality limits the welfare of individuals who wish to
make trips and the economic vitality of industries that use air
travel or air cargo as a significant input to production.

Fairness
of taxing aviation has been a subject of ongoing debate for a long
time. The arguments both in favour and against have been summarised.

Yes	No
Fair: Would a tax on aviation be fair?
A tax on aviation fuel would be progressive and fair, as the very poorest are already unable to afford air fares. Faced with higher costs, airlines will pass these on to their customers in the form of higher ticket prices. Even among those who can afford air travel, the rich consume many more flights than the less well off, so a rough equity would be achieved. In any case, the sums involved are unlikely to prevent anyone flying off on an annual holiday, as even a 10% rise in air fares would be less than 5% of the total cost (including hotels, meals, etc.) of the whole experience.	Cheaper air travel has been of great benefit to hundreds of millions of people, and an aviation tax would jeopardize this. Huge numbers who had never been able to travel beyond their home country before are now able to explore the world and enjoy what used to be just a privilege of the wealthy. Those who wish to end budget air travel are partly motivated by snobbery, but cheap fares have a wider political and social benefit. By opening people’s minds to other cultures they create more understanding and tolerance in the world. They also aid development in previously remote areas as tourism creates new sources of income for the people there. At the same time ease of movement has freed up the global labour market and increased productivity in the developed world. We should do nothing to raise the cost of flying and check such a positive trend.
Development aid: Would a tax be a good way to channel funding into development aid?
A tax on aviation would be international in scale and provides an excellent opportunity to raise money for development aid. In the long term a global tax on aviation could be administered by the United Nations, providing it with a regular, predictable income safe from political interference. Greater UN control over development aid will also overcome current problems of duplication, favouritism and waste in competing national programmes. Setting revenues from aviation aside to fund international aid will make a tax more acceptable to passengers, and will spread the burden of aid funding more fairly around the world.	Unless a tax on aviation was so high that it damaged the airline industry, it is unlikely to meet the need for development aid. Countries have already made commitments to fund the Millennium Development Goals (MDGs) and they should be prepared to meet their promises out of their domestic budgets, rather than experiment with a untested gimmick. There is a danger that if politicians and voters feel international aid has its own tax they will stop funding it from regular taxation. There are also serious questions about accountability and administration - national aid budgets are already much more likely to be well run than the programmes of undemocratic international institutions such as the UN and EU. Finally, hypothecation of revenues (meaning money raised by a particular tax has to be spent on only one thing) is in itself bad. There is no reason to think that the need for development aid will go up or down with the economic fortunes of the airline industry. If another terrorist attack like 9/11 took place (or there was an international disease outbreak such as SARS or Avian ‘flu), aviation could be badly hit again. With such a tax, fewer flights would mean less money for development aid - is that sensible?
Internationalized: Could an aviation tax be internationalized?
A tax on aviation fuel could certainly be put into effect on an international basis. Climate change is a global problem and the ICAO was tasked in the Kyoto Protocol to look at how the aviation industry worldwide could reduce emissions. As it is in the interests of all countries to tackle aircraft emissions, an international consensus could certainly be achieved given effort. Agreements on other difficult issues have been reached in the past (e.g. the Millennium Development Goals, anti-landmine treaties, the Montreal climate change conference in 2005). Even before international agreement is reached, groups of states could still adopt such a tax effectively. For example, EU states could apply a fuel tax to EU airlines on European flights, and extend it to non-EU airlines in Europe by renegotiating Air Service Agreements with other states. Levels of tax can be set low enough to avoid distorting travellers’ choices about where they fly.	An international tax on aviation fuel would be impractical and impossible to put into action. Attempts to place a tax on fuel by individual states will fail, as airlines can easily obtain fuel more cheaply elsewhere. And if individual countries raise the cost of flying to and from their airports, they will lose income from tourists and business travellers to other states. Trying to put a global tax in place will also fail - international treaties actually make it illegal to tax aviation fuel (the 1944 Chicago Convention, reinforced by many bilateral Air Service Agreements) and there is no international consensus for change.

Accepting,
however, that there may be valid macroeconomic reasons for taxation
to provide public goods and, as part of necessary governance, the
issue then becomes one of the types of taxes to use, their relative
levels, and the nature of their application. The usual criteria for a
“good” tax are that it should be administratively simple
and cheap, efficient and equitable. In the following paragraphs we
will examine the existing tax regime in major aviation countries of
the world and how well the aviation tax system in India measures to
international comparison.

Before we
proceed further a word about selection of countries may be in order.
Ten countries (eleven if we include India) have been selected for
this study. The sample has been drawn on the basis of top 10 airlines
in the world. Each year London-based consultancy firm Skytrax polls
millions of passengers around the world to find out which airlines
are the cream of the crop. According to their most recent survey the
top ten airlines are 1. Singapore Airlines (Singapore) 2. Thai
Airways (Thailand) 3. Cathay Pacific (Hong Kong) 4. Qatar Airways
(Qatar) 5. Qantas (Australia) 6. Malaysia Airlines (Malaysia) 7. Air
New Zealand (New Zealand) 8. China Airlines (Taiwan) 9. Emirates and
(UAE) 10. British Airways (United Kingdom).

Singapore

The Tax Regime

The
fundamental tenet of Singapore's tax policy is to keep tax rates
competitive both for corporations as well as individuals. Tax has
been used to influence behaviour towards desirable social and
economic goals. For instance, to encourage mechanisation and
automation, the government allows accelerated capital allowance for
most assets used for business purposes. To encourage Singaporeans to
have more children, tax rebates are given for the first to fourth
child(ren).

The types
of taxes levied in Singapore are: company income tax, personal income
tax, property tax, estate duty and stamp duty. There is no capital
gains tax, defence surcharges etc. Singapore is a free port and has
relatively few excise and import duties. Excise duties are imposed
principally on tobacco, petroleum products and liquors. Also, very
few products are subject to import duties. The duties are mainly on
motor vehicles, tobacco, liquor and motor spirit.

Corporate Tax

A
company, regardless of whether it is a local or a foreign company, is
taxed on its:

* income
accruing in or derived from Singapore; or

* income
received in Singapore from outside Singapore

Income is
assessed on a preceding year basis. This means that the basis period
for any Year of Assessment (YA) generally refers to the financial
year ending in the year preceding the YA. The rate of tax is 18%.

Effective
from YA 2008, a partial tax exemption is given to companies on normal
chargeable income (normal chargeable income refers to income to be
taxed at the prevailing corporate tax rate) of up to $300,000Since YA
2005, a qualifying
company can claim for
full tax exemption on the first $100,000 of normal chargeable income
for its first three consecutive YA.

Effective
from YA 2008, a further 50% exemption is given on the next $200,000
on a qualifying company's normal chargeable income

Goods and Service Tax (GST)

GST is a
broad-based consumption tax levied on the import of goods, as
well as nearly all supplies of goods and services in Singapore. 
The only exemptions are for the sales and leases of residential
properties and most financial services.  Export of goods and
international services are zero-rated.  In some countries,
GST is known as the Value Added Tax (VAT). GST is a
self-assessed tax. GST is also levied on the import of
goods from overseas. 

GST
for Marine, Shipping and Aviation Services

In
general, the following services performed in connection to ships and
aircrafts are international services:

Handling
services

Handling
of goods carried by them

Pilotage,
salvage and towage

Surveying
and classification for purposes of any register

Building
and hiring

Repairs,
maintenance, broking or management provided to the owner, operator or
agent

The current rate of GST effective from 1 July 2007 is 7%.

Tax
Burden on Aviation

As the
foregoing narration shows Singapore has a relatively simple tax
structure and has remained a low tax country. There is no tax that is
specifically targeted at aviation sector. Singapore being a free port
Singapore Airlines by virtue of duty free import of aviation fuel is
able to establish substantial advantage over its rivals.

Thailand

The Tax Regime

In its
Annual Report 2007, the Revenue Department of the Government of
Thailand states that the basic objective of Thailand’s Tax
Policy is to build a sustainable tax base that is transparent,
effective and just ‘to be used as mechanisms to strengthen the
country’s social development and business competitiveness.’

The types
of taxes levied in Thailand are personal income tax, corporate income
tax; value added tax, specific business tax, petroleum income tax,
stamp duty and import duty.

Corporate Income Tax

Corporate
income tax (CIT) is levied on both domestic and foreign companies. A
Thai company is subject to CIT on its worldwide net profit for the
accounting year. A foreign company operating in Thailand is subject
to CIT only on profit arising out of its business activities in
Thailand. However, a foreign company engaged in international
transport is subject to CIT on its gross receipts.

The
corporate income tax rate in Thailand is 30% on net profit. However,
the rates vary depending on types of tax payers. Taxpayers are
divided according to their size (small company, company listed in
stock exchange etc.), type of business (banking/non-banking),
ownership (foreign/domestic) and profitable association and
foundation. The tax rate ranges from a low 2% for profitable
association and foundation to 30% for companies listed in stock
exchange.

Value added tax

Value
added tax (VAT) has been in implementation since 1992 replacing
Business Tax. Vat is an indirect tax imposed on the value added at
each stage of production and distribution. Any person or entity who
regularly provides goods or supplies services in Thailand and has an
annual turnover exceeding 1.8 million bath is subject to VAT. An
importer is also subject to VAT in Thailand. Certain businesses are
exempted from VAT and instead have to pay specific business tax.

The
current rate of VAT is 7%. Certain activities are subject to VAT at
0%, aircraft or sea vessel engaging in international transport is one
such activity.

Specific
Business Tax

Specific
business tax (SBT) is another type of indirect tax that is levied on
businesses that are excluded from payment of VAT. This was introduced
in 1992 to replace Business tax.

Businesses
that are subjected to SBT include banking, financial and similar
services; life insurance; pawn brokerage and real estate. Tax rate is
3% except for life insurance and pawn brokerage for which it is 2.5%.

Petroleum
Income Tax

Petroleum
Income Tax (PT) is a direct tax, levied annually (for each accounting
period of 12 months duration) on net profit of a “petroleum
taxpayer”, who is carrying out the business of petroleum
exploration and production. It is also levied on the disposal of
profits outside of Thailand. Downstream industries including refining
are not covered under Petroleum Income Tax Act. The tax is
characterized by the presence of very few taxpayers. Tax rate varies
from 23.08% to 50%.

Customs Duty

Customs
duty on aviation related articles are as follows:

Aviation
turbine fuel – 0.56 baht per litre

Helicopters,
aircrafts and the like – 5% ad-valorem

Parts of
helicopters, aircrafts and the like – 5% ad valorem

Tax
Burden on Aviation

To sum up
incidence of taxation in Thailand on aviation related activities are
as follows:

Item	Rate
Corporate Income tax	30%
Value Added Tax - On aircrafts for international transportation - aircrafts others	0% 7%
Customs Duty - ATF - Helicopters, aircrafts - Parts of helicopters, aircrafts	5% 5% 5%

Hong
Kong

The Tax Regime

Honk Kong
is a free port and does not levy any customs tariff on imports. There
is also no tariff quota or surcharge. There is no value added taxes
nor general services taxes. Excise duties are levied on only four
types of goods irrespective of whether they are imported or locally
manufactured. These goods are liquors, tobacco, hydrocarbon oil and
methyl alcohol. Profit tax is the only direct tax that a business
organisation has to bear in Hong Kong.

A number
of taxes that exist in most jurisdictions do not exist in Hong Kong.
Thus there are no capital gains taxes, no withholding taxes, no sales
taxes, no VAT, no annual net worth taxes and no accumulated earnings
taxes on companies which retain earnings rather than distribute them.
In the long term it is intended to completely phase out stamp duty on
the sale and issue of shares and securities and to reduce direct
taxes further.

Profit Tax

Profits
tax is levied under the Inland Revenue Ordinance on the "assessable
profits" of corporate entities, partnerships, trusts and sole
proprietorships. It is levied according to the "territorial
principle" meaning that it is the source of the income rather
than the residential or non-residential status of the entity that
determines whether or not trading income is or is not subject to Hong
Kong profits tax. The residential or non-residential status of the
entity is irrelevant as is the fact that the income is or is not
exempt from tax in a foreign jurisdiction. Companies pay a standard
rate of 17.5% on assessable profits.

Qatar

Tax
Regime

Other
than income tax Qatar does not levy any other tax. There is no GST,
VAT or sales tax nor any gift, wealth, estate, and/or inheritance
taxes in Qatar. There are no local taxes or levies as well. Unified
customs tariff of 5 percent is applicable for GCC countries including
Qatar.

Income tax

Law No.
11 of 1993 was issued on 14 July 1993 to cover the income tax system
and filing procedure in Qatar. In general, the Law provides that any
business activity carried out in Qatar will be subject to tax. An
"activity" has been defined as any occupation, profession,
service, trade or the execution of a contract or any other business
for the purpose of making profit. Income tax is levied on
partnerships and companies operating in Qatar whether they operate
through branches or in partnership with foreign companies. There are
no personal taxes, social insurance or other statutory deductions
from salaries and wages paid in Qatar.

Taxes are
levied on a taxpayer's income arising from activities in the State of
Qatar. The following are the income tax rates:

Qatari Riyals	Tax Rate
0 - 100,000	Nil
100,001 - 500,000	10%
500,001 - 1,000,000	15%
1,000,001 - 1,500,000	20%
1,500,001 - 2,500,000	25%
2,500,001 - 5,000,000	30%
5,000,001 and above	35%

Australia

The Tax Regime

Income Tax

The
current rate of corporate income tax is 30%.

Excise

Excise
duty is a tax on certain types of goods produced or manufactured in
Australia. These excisable goods include alcohol, tobacco and
petroleum and alternative fuels. Excise duty on aviation turbine fuel
is 0.2854 Aus$ per litre.

Capital
gains tax

Capital
gains tax (CGT) is a tax charged on capital gains that arise as a
result of the sale or disposal of assets (such as investment property
and shares) (CGT) is the tax one pays on any capital gain made and
included in annual income tax return. There is no separate tax on
capital gains, it is merely a component of income tax. One is taxed
on net capital gain at the marginal tax rate.

Fringe
benefits tax

Fringe
benefits tax (FBT) is paid on certain benefits employers provide to
their employees or their employees' associates in place of salary or
wages.

FBT law identifies various categories of fringe benefits and provides
specific valuation rules for each category. The categories are
outlined below.

Car fringe benefits

Loan fringe benefits

Debt waiver fringe benefits

Expense payment fringe benefits

Housing fringe benefits

Board fringe benefits

Airline transport fringe benefits

Living-away-from-home allowance fringe benefits

Property
fringe benefits

Entertainment
benefits

Entertainment provided by a tax-exempt organisation

Car
parking fringe benefits

Residual fringe benefits

Airline transport
fringe benefits

An
airline transport fringe benefit may arise when the employer provides
an employee of an airline or a travel agent with free or discounted
air travel on a stand-by basis.

FBT rate
equal to the highest marginal rate of income tax plus Medicare levy.
For the FBT year ended 31 March 2008 this was 46.5%.

Goods
and Services Tax

Goods and
Services Tax (GST) is a broad-based tax of 10% on most goods,
services and other items sold or consumed in Australia. GST is
charged at each step in the supply chain, with registered businesses
including GST in the price of goods and services they sell.

For GST,
a sale or supply includes a sale of goods, lease of premises, hire of
equipment, giving advice, export of goods, and supply of other
things. A purchase includes an acquisition of goods or services such
as trading stock, a lease, consumables and other things.

Customs Duty

Customs
duty on aviation related articles are as follows:

Aviation
turbine fuel – 0.02854 Aus$ per litre

Helicopters,
aircrafts and the like – 0% ad-valorem

Parts of helicopters,
aircrafts and the like – 0% ad valorem.

Tax Burden on Aviation

To sum up
incidence of taxation in Australia on aviation related activities are
as follows:

Item	Rate
Corporate Income tax (incl. Capital Gain Tax)	30%
Excise Duty - Aviation Turbine Fuel	0.02854 Aus $/ltr
Goods and Service Tax	10%
Fringe Benefit Tax - Airline Transport Fringe Benefit Tax	46.5%
Customs Duty - Kerosene used as fuel for aircrafts - Helicopters, aircrafts - Parts of helicopters, aircrafts	0.02854 Aus $/ltr 0% 0%

Malaysia

The Tax Regime

Company Income Tax

Prior to 1995, the scope
of company income tax in Malaysia was based on derived and remittance
basis, except for banking, insurance, air and sea transport, which
are based on worldwide income. However, with effect from 1995, the
scope of company income tax in Malaysia was changed to derived basis
except for banking, insurance, air and sea transport.

Prior to 2008, the
taxation of dividend was based on a full imputation system. Effective
from 2008, Malaysia has moved to Single-tier company income tax
system. Under this tax system, tax on the company’s profit is a
final tax, and dividends distributed to shareholders will be exempted
from tax.

A tax rate of 26% is
applicable to both resident and non-resident companies with effect
from 2008.

However, companies with
paid-up capital of RM2.5 million and below are subject to a company
tax of 20% on chargeable income of up to RM500,000. The company
income tax rate on the remaining chargeable income is maintained at
the prevailing tax rate for year of assessment.

In case of company
carrying on petroleum production, the applicable tax rate is 38%.

Taxation on Petroleum Companies

Income tax is levied annually on the chargeable income derived by any
person carrying on petroleum operations in Malaysia.

Petroleum companies are subject to a flat tax rate of 38%. However
income derived from refining or liquidifying of petroleum and any
activity dealing with refined products is subject to the normal
company tax

Tax on Import

Import duty is mostly ad valorem although some specific duties are
imposed on a number of items. Ad valorem rates of import duty vary
from Nil on basic foods to 60% on jars made of glass. Import duty on
jet fuel is ‘nil’.

Tax on Export

Crude
Palm Oil

Export duty is based on the gazetted value of crude palm oil. It is
only levied at a price level exceeding RM650 per tonne, which is
estimated to be the cost of production.

On the first RM 650 per tonne	Nil
Plus on the next RM 50.00 per tonne	10% a.v.
Plus on the next RM50.00 per tonne	15% a.v.
Plus on the next RM50.00 per tonne	20% a.v
Plus on the next RM50.00 per tonne	25% a.v
Plus on the balance	30% a.v

Process
palm oil is exempted from export duty.

Excise
Duty

Effective 1.1.2004, excise duty is levied on selected locally
manufactured and imported goods at various rates. Excise duty on jet
fuel is ‘nil’.

Sales Tax

This is an ad valorem single stage tax imposed at the import and
manufacturing levels except petroleum products where the rates are
specific. Sales tax on jet fuel is ‘nil’.

Service Tax

Service Tax is charged and levied in respect of any taxable service
provided by any taxable person or service except for exported taxable
service which means service provided to a entity in a country other
than Malaysia.  The rate is 5%.

Tax Burden on Aviation

To sum up
incidence of taxation in Malaysia on aviation related activities are
as follows:

Item	Rate
Corporate Income tax	26%
Excise Duty - Aviation Turbine Fuel	Nil
Goods and Service Tax	10%
Sales Tax	Nil
Service Tax	5%
Customs Duty - Kerosene jet fuel - Helicopters, aircrafts - Parts of helicopters, aircrafts	Nil Nil Nil

New
Zealand

The Tax Regime

The
Inland Revenue Department (IRD) on behalf of the Government of New
Zealand collects taxation in New Zealand at a national level.
National taxes are levied on personal and business income, as well as
on the supply of goods and services. There is no capital gains tax,
although certain "gains" such as profits on the sale of
patent rights are deemed to be income. Local property taxes (rates)
are managed and collected by councils. Some goods and services carry
a specific tax, referred to as an excise or a duty e.g. Alcohol
excise or gaming duty. A range of government agencies such as the New
Zealand Customs Service collects these.

Business income
tax

Businesses in New Zealand pay income tax on their net profit earned
in any specific tax year. For most businesses the tax year runs from
1 April to 31 March but businesses can apply to the IRD for this to
be changed.

Payments are made in three installments through the year. These are
known as provisional tax payments. At the end of the year the
business files a tax return (due on the following 7 July for
businesses with a tax year ending 31 March) and any under or
overpayment is then calculated.

Companies
pay income tax at 30% on profits. Tax rates for individuals operating
as a business (that is, individuals who are self-employed)
are the same as for employees

Goods and Services Tax

Goods
and services tax (GST) is an indirect
tax introduced in New
Zealand in 1986. This represented a major change in New Zealand
taxation policy as until this point almost all revenue had been
raised via direct taxes. GST now makes up 19% of the New Zealand
Government's core revenue.

Most
products
or services
sold in New
Zealand incur GST at a
rate of 12.5%. The main exceptions are financial
services (eg banking and
life insurance) and the export of goods and services overseas.

All businesses are required to register for GST once their turnover
exceeds (or is likely to exceed) $40,000 per annum. Once registered,
businesses charge GST on all goods and services they supply and can
reclaim any GST they have been charged on goods and services they
have purchased.

Fringe Benefit Tax

Employers are liable to pay Fringe benefit tax (FBT) on benefits
given to employees in addition to their salary or wages (e.g. motor
vehicles or low interest loans)

There are several methods available for calculating FBT liability,
including an option of paying a flat rate of 64% on all benefits
provided.

Customs duty

Customs duty is levied on some imported goods at rates generally
ranging from 3% to 10%. Customs duty on aviation turbine fuel,
helicopters, aircrafts and parts thereof is ‘nil’.

Excise duty

Excise duty is levied, in addition to GST, on alcoholic beverages
(e.g. wines, beers, and spirits), tobacco products and certain fuels
(e.g. compressed natural gas and gasoline). The excise duties on fuel
are 42.524¢ per litre (plus 8¢ per gram of lead) on motor
fuel, 30.2¢ per litre on Menthol and 10.4¢ per litre on
Liquified petroleum gas. Compressed natural gas has an excise of
$3.17 per gigajoule.

Tax
Burden on Aviation

To
sum up incidence of taxation in New Zealand on aviation related
activities are as follows:

Item	Rate
Corporate Income tax	30%
Excise Duty - Aviation Turbine Fuel	Nil
Goods and Service Tax	12.5%
Fringe Benefit Tax	64%
Customs Duty - Kerosene jet fuel - Helicopters, aircrafts - Parts of helicopters, aircrafts	Nil Nil Nil

Taiwan

The
Tax Regime

Commodity Tax

Commodities
manufactured domestically or imported from abroad are subject to
commodity tax. Commodity tax is levied upon removal of taxable
commodities from the manufacturers' premises or upon importation.

The rate
of tax is as follows:

Gasoline Diesel Kerosene Fuel oil for aircraft Fuel oil Dissolving oil Liquefied petroleum gas

NT$6,830/KL NT$3,990/KL NT$4,250/KL NT$ 610/KL NT$ 110/KL NT$ 720/KL NT$ 690/MT

Customs Duty

Customs
duty varies from ‘nil’ to 45%. Customs duty on aviation
related articles are as follows:

Kerosene
type jet fuel 10.00%

Helicopters,
aircrafts Nil

Parts of
helicopters, aircrafts Nil

Business Income Tax

A major
difference between the business tax imposed in Taiwan and corporate
tax in other countries is that business tax in Taiwan is imposed on
companies, corporation as well as business organisation whether in
the form or sole proprietorship or partnership, whereas only
companies and corporations are subject to this tax in other
countries.

The
minimum taxable amount, tax brackets and rates are as follows:

1. If the
total taxable income of a profit seeking enterprise is less than NT$
50,000, the profit-seeking enterprise is exempt from tax.

2. If the
total taxable income of a profit seeking enterprise is less than NT$
100,000, the income tax rate will be 15%. However, the income tax
payable shall not exceed one half of the portion of taxable income
more than NT$ 50,000.

3. If the
total taxable income of a profit seeking enterprise is more than
NT$100,000, the income tax rate shall be 25% on the portion of
taxable income more than NT$ 100,000.

Business Tax

Business
tax, in the form of value-added or non-value-added, is levied on the
sale of goods or services within the territory of the Republic of
China (R.O.C.) and on import of goods. 

The
business tax rate ranges from 5% to 10%.

Tax
Burden on Aviation

To
sum up incidence of taxation in Taiwan on aviation related activities
are as follows:

Item	Rate
Business Income tax	Nil to 25%
Commodity Tax - Fuel oil for aircraft	NT$ 610/Kl
Business Tax (i.e. VAT)	5% - 10%
Customs Duty - Kerosene jet fuel - Helicopters, aircrafts - Parts of helicopters, aircrafts	10% Nil Nil

United
Arab Emirates

Dubai's
enormous oil revenues mean that the government has no need to raise
income through direct taxation. Accordingly Dubai is a "no tax"
emirate characterized by an almost complete absence of taxation.
There are no withholding or capital taxes.

With the
exception of banks and oil companies no corporate income tax is
payable by businesses in Dubai. Oil companies pay up to 55% tax on
UAE sourced taxable income whereas banks pay 20% tax on taxable
income.

Those
importers who have the appropriate trade licence can only undertake
imports into Dubai. Import duties have been largely standardised at
4%, but there are many exemptions, including food, building
materials, medical products and any item destined for the three free
zones: Jebel Ali Free Zone, Dubai Internet City and the Dubai
International Financial Centre.

UAE,
however, has plans to introduce GST from January 2009.

United
Kingdom

Value added tax

The third largest source of government revenues is value added tax
(VAT), charged at the standard rate of 17.5% on supplies of goods and
services. It is therefore a tax on consumer expenditure. It has been
reduced to 15% for 13 months from 1st December 2008 and from 1
January 2010 it will revert to 17.5%.

Certain
goods and services are exempt from VAT, and others are subject to VAT
at a lower rate of 5% (the reduced rate, such as domestic gas
supplies) or 0% ("zero-rated", such as food and children's
clothing, Aircraft and helicopter building and repair service).

Excise
Duty

Excise Duty is usually charged on the production rather than sale of
goods.

Air
Passenger Duty (APD)

APD is an Excise duty which is charged on the carriage, from a UK
airport, of chargeable passengers on chargeable aircraft.

There are currently four rates of duty

Standard rates:

£20
for specified European destinations

£80
for all other destinations

Reduced rates:

£10
for specified European destinations

£40 for all other
destinations

Corporation tax

The
fourth largest source of government revenues is corporation tax,
charged on the profits and chargeable gains of companies. The main
rate is 28%, which is levied on taxable income above £1.5m or
where there is no claim to another rate, or where another rate does
not apply.

Budget 2007 announced a staged increase in the small companies rate
of Corporation Tax from 19 per cent to 20 per cent from April 2007,
21 per cent from April 2008 and 22 per cent from April 2009. However,
the increase from 21 per cent to 22 per cent from April 2009 has been
deferred until April 2010.

There is
also a Supplementary charge to Corporation Tax for companies involved
in petroleum exploration (for example in the North Sea) which is
levied at a rate of 20% for profits arising from 1 January 2006

Customs
Duty

Customs duty on aviation related articles including jet fuel are
‘nil’.

Tax Burden on Aviation

To
sum up incidence of taxation in the UK on aviation related activities
are as follows:

Item	Rate
Corporation Tax - Main Rate - Small Companies	28% 21%
Value Added Tax - Aircraft and helicopter building and repair service	15% till Dec 2009, 17.5% thereafter 0%
Excise Duty - air Passenger Duty	₤20 - ₤80
Customs Duty - Kerosene jet fuel - Helicopters, aircrafts - Parts of helicopters, aircrafts	Nil Nil Nil

India

For
obvious reasons we do not give a description of India’s tax
regime instead we present below a summary of tax burden on aviation.

Tax Burden on Aviation

Item	Rate
Corporate Income Tax - Domestic Corporations Foreign Corporations Wealth Tax (if the net wealth exceeds Rs.1.5 mn) Dividend Distribution Tax Minimum Alternative Tax - Fringe Benefit Tax	30%+10%SC+3%EC 40%+2.5%SC+3%EC 1% 15% 7.5% (+2.5%SC+2%EC) of book profit as tax, if the tax payable as per regular tax provisions is less than 7.5% of its book profits. 34%
Sales Tax - Central - State	2% Varies from State to State (Range 25%-40%)
Excise Duty - Helicopters, aircrafts and parts thereof - ATF	16% 8%
Service Tax - Airport service - Transport of goods by air services - Maintenance and repair services - Cargo handling - Outdoor catering	12% 12% 12% 12% 12%
Customs Duty - Aviation turbine fuel - Helicopters - Aeroplanes - Parts of helicopters, aircrafts	5%+8% (Addl. Cust. Duty) 12.5% 3% 3%

Conclusion

The
results of the survey of tax burden on aviation in selected countries
has been summarised in the table at Annexure 1. The shared element
that emerges is that a few taxes, like corporate tax, VAT/GST/sales
tax, excise and customs duty are common in the selected countries.
However, an inter country comparisons of taxes is not possible in
most cases because in some countries tax rates are ad-valorem and in
others they are specific rate.

The
survey shows that the sample countries are a mix of low, moderate and
high tax regime. At one end are Singapore, Qatar and the UAE with
very taxes and low tax rate. The tax regime of Australia, New
Zealand, the UK and Thailand can be classified as moderate in the
matter of indirect taxes and high in respect of direct tax. Taiwan
has a moderate tax regime both for direct and indirect tax. India has
a high tax regime both for direct and indirect taxes.

Corporate
tax and VAT/GST/sales tax are easier to compare being levied at
ad-valorem rates in all the countries. Among the selected countries
the rate of corporate tax is highest in India. Even if we disregard
surcharges on corporate tax (on the assumption that they are ad-hoc)
India’s status only improves to ‘among the highest’
drawing even with New Zealand and Australia at 30%. It may be argued
that corporate tax is levied at an uniform rate across all the
industry and business and therefore it would be unwise to argue that
the burden falls too heavily on aviation alone. This is the mindset
that we argued in the earlier part of this paper that needs to be
countervailed. Taxation issues affecting the aviation industry should
be examined with reference to the problems being experienced by the
industry and tax therefore the policy should be drawn up that is best
suited to the industry and not for the economy as a whole.

The tale
of sales tax on ATF in India is too well known and needs no
repetition here. The difference in rate in India and among the
selected countries is too large. If we leave India out then among the
selected countries the rate is highest in the UK, which is 15%. The
lowest rate of sales tax in India that of 25% is higher by 66%.

After the
recent reduction of customs duty on ATF, India’s customs duty
is largely comparable with the selected countries.

Annexure 1

Tax Burden on Aviation – Selected Countries

Country Item	India	United Kingdom	Taiwan	New Zealand	Malaysia	Australia	Qatar	Thailand	Singapore	Hong Kong
Corporate Income Tax/Business Income Tax	Domestic 30%+10%+3% Foreign 40%+2.5%+3%	Main Rate 28% Small Cos. 21%	‘Nil’ to 25%	30%	26%	30%	‘Nil’ – 35%	30%	18%	17.5%
VAT/GST/Sales Tax/Business Tax	CST 2% State ST -Varies from State to State (Range 25%-40%)	15%	5% - 10%	12.5%	10% ATF ‘Nil’	10%		7% aircrafts for intl. tpt. ‘Nil’	7% ‘Nil’ for aviation related services
Excise Duty/Commodity Tax	16%	Air Passenger Duty ₤20-₤80	Fuel oil for aircraft NT$ 610/Kl	ATF – ‘Nil’		ATF 0.02854 Aus$/ltr
Customs Duty	ATF 5%+8% (Addl.Cust.Duty) Helicopters 12.5% Aeroplanes 3% Parts 3%	‘Nil’	Kerosene jet fuel 10% Helicopters, aircrafts and parts ‘Nil’	‘Nil’	‘Nil’	ATF 0.02854 Aus$/ltr Helicopters, aircrafts and parts ‘Nil’		ATF 5% Helicopters, aircrafts and parts thereof 5%
Fringe Benefit Tax	34%					46.5%
Service Tax	Airport service 12% Transport of goods by air services 12% Maintenance and repair services 12% Cargo handling 12% Outdoor catering 12%				5%
Fringe Benefit Tax	34%			64%		46.5%

Annexure 2

Tax
rates around the world

From Wikipedia,

(http://en.wikipedia.org/wiki/Tax_rates_around_the_world)

Comparison of Tax Rates around the world is a difficult and somewhat
subjective enterprise. Tax laws in most countries are extremely
complex, and tax burden falls differently on different groups in each
country and sub-national unit. The lists below give an indication by
rank of some raw indicators.

This
is a list of tax rates around the world. It is focused on three types
of taxes: corporate and individual taxes and sales taxes (value added
taxes (VAT) / goods and services taxes (GST) / sales). It is not
intended to represent the true tax burden to either the
corporation or the individual in the listed country.

Country	Corporate	Individual	Payroll tax	VAT/GST/ Sales
Algeria	30%+3%	0-40%		7/14/17%
Argentina	35%	9-35%		21%
Australia	30%	0-45%		10% (GST)
Austria	25%	21-50%		20% (GST)
Azerbaijan	22%	0-35%		18%
Bangladesh	0-40%	0-25%		4-15%
Barbados	40%	25%-40%		15% (hotel accommodation 7.5%)
Belarus	24%	12-30%	35%	10/18%
Belgium	33.99%	25-50%		21%
Brazil	34%	0-27.5%	31%	17-25%
Bulgaria	10%	10%	42.7%	20%
Burundi	35%	35%	N/A
Cameroon	38.5%	10-35%		19.25%
Canada	29.5-35.5%	15-29% (federal) 4-24% (provincial)	4.95% (CPP)	5% (GST) 0-10% (provincial sales taxes)
Chile	17%	0-40%		19%
China	25%	5-45%		17%
Colombia	35%	0.29-38.5%		16%
Croatia	20%	15-45%	37.2%	22%
Cuba	30%	10-50%		12%
Cyprus	10%	20-30%		15%
Czech Republic	21%	15%	47.5%	19%
Denmark	25%	0-63%		25%
Egypt	20%	10-20%	N/A
El Salvador	25%	0-25%		13%
Estonia	22%	22%	33.9%	18%
Finland	26%	9-32% national, 16-21% municipal		22% 17% (food and fodder) 8% (e.g. accommodation and culture)
France	33.33%	10-50%	45%	19.6%/5.5% on certain goods (e.g. food)
Germany	29.8% (average)	0-45%		19%/7% on certain goods (e.g. food)
Georgia	20%	12%		18%
Gibraltar	33%	17-40%	N/A
Greece	22/25%	0-40%		19%
Guatemala	31%	15-31%		12%
Guyana	35%/45%	33⅓%		16%/0%
Hong Kong	16.5%	0-15%	N/A
Hungary	16%	18% and 36%	50.5%	20%
Iceland	18/26%	0-36.72%	6%	0/14/24.5%
India	30-40%	10-30%		12.5%
Indonesia	30%	5-35%		10%
Iran	25%	0-35%		0%
Ireland	12.5%	20-41%	16.75%	21%
Israel	27%	10-47%		15.5%
Italy	33%	23-43%		20%
Japan	30%	5-40%		5% (consumption)
Jordan	15/25/35%	5-30%		16% (GST)
South Korea	13/25%	9%-21.375% + 36% excess		10%
Latvia	15%	25%	33%	18%
Lebanon	15/4-21%	2-20%		10%
Lithuania	15%	15%/24%	34%	18%
Luxembourg	29.63%	6-38.95%		15%
Malaysia	28%	0-28%		5% GTS
Malta	35%	0-35%		18%
Mexico	28%	3-29%		15%
Monaco	33.33%	0%		19.6%
Montenegro	9%	15%		17%
Morocco	35%	0-41.5%		20%
Nepal	N/A	10% to 25%		13%
Netherlands	25.5%	0-52%		19% (6% for essential and selected goods)
New Zealand	30%	0-39%		12.5% (GST)
Norway	28%	0-47.8%	14%	25% 14% for some goods
Pakistan	35%	7.5-35%		16%
Panama	30%	0-27%		0/5%
Peru	27%	15-27%		2/19%
Philippines	35%	5-32%		0 ; 7 ; 12% (in some cases, foreign investors are zero-rated)
Poland	19%	19-40%	41.11%	22%, 7% (reduced rate on certain goods)
Portugal	27.5%	10.5-40%		20% (reduced rates on certain goods -- 5% or 12%)
Romania	16%	16%	45.15%	19%
Russia	24%	13%		18%, 10% and 0% (reduced rates are for certain goods)
Saudi Arabia	20%-85% 11% Social security	Residents 2.5% Zakat Non-residents 20%	N/A
Senegal	33%	up to 50%		20%
Serbia	10%	10/14%	35.8%	18%
Singapore	18%	3.5%-20%		7% (GST)
Slovakia	19%	19%		19%
Slovenia	22%	16-41%		20%
South Africa	28%	18-40%		14%
Spain	25-30%	0-42%		16%
Sweden	28%	28.89%-59.09%	32.42%	25%. 12% and 6% for some goods.
Switzerland	13-25%	0-13.2% (federal)		3.6/2.4/7.6%
Syria	10-45%	5-15%		Debuts in 2008
Republic of China	25%	6-40%		5%
Tanzania	30%	15%-30%
Thailand	30%	5-37%		7%
Tunisia	30%	0-35%		6/12/18%
Turkey	20%	15-35%		18%
Ukraine	25%	13%[23]		20%
United Arab Emirates	0%	0%		0%
United Kingdom	21-28%	0,20,40%	23.8% (National Insurance)	17.5%
United States	15-39% (federal) 0-12% (state)	0-35% (federal) 0-10.3% (state)	15.3% (federal)	0-10.25% (state and local)
Uruguay	30%	?-24.125%		23%
Uzbekistan	12%	13-30%		10-20%
Venezuela	15/22/34%	6-34%		8-10%/9%
Vietnam	28%	0-40%		10%
British Virgin Islands	0%	0%	10-14%	0%
Zambia	35%	10-30%		17.5%

1