Earlier in 2012 the Ministry of Finance promulgated a controversial regulation which requires every passenger on a flight originating in China to pay a levy of Rmb50 (for domestic routes) or Rmb90 (for international routes). The levy is a contribution to the Civil Aviation Development Fund. Chinese airlines are also required to contribute to the fund - their levy is calculated on a per-kilometre basis and according to the maximum take-off weight of the aircraft.

Previously, passengers in China were charged a so-called 'airport administration and construction fee' on each ticket purchased, while Chinese airlines contributed to a civil aviation infrastructure construction fund for each revenue-earning flight that they operated. The airport administration and construction fee was in place for over 20 years, whereas the airline fee was first introduced in 2004. Although the two charges have been consolidated and given a new name, their function remains largely unchanged.

The regulation provides that the fund must be used to finance or subsidise:

  • the construction of civil aviation infrastructure (eg, airports and air traffic control systems);
  • cargo airlines, regional airlines, international routes and small and medium-sized airports;
  • energy-saving measures and emissions reduction plans;
  • general aviation; and
  • research and development in civil aviation education and information technology.

The regulation also provides that the fund levy will be charged from April 1 2012 to December 31 2015.

The ministry's regulation has provoked a public outcry in China. Many commentators have questioned the need for, and the legitimacy of, such a charge. It has been argued that with vast tax revenues of Rmb1 trillion in 2011, the government does not lack capital for large-scale public infrastructure, and that passengers should not be charged to finance or subsidise such construction projects. Moreover, the fund is similar to a tax. As such, its introduction and implementation require the approval of the National People's Congress; the government cannot introduce a quasi-fiscal measure on its own initiative and without following the requisite legislative process. However, neither the ministry nor the Civil Aviation Administration of China has offered a satisfactory response to these issues.

Why has the government chosen to impose a new and unpopular levy on passengers and Chinese airlines? Some see the move as being motivated by fear of a declining tax take. Following tax reform measures in 2011, including changes to personal income tax that seek to reduce the burden on low-income individuals, the government may be looking elsewhere to maintain capital construction spending and support the economy through uncertain times.

For further information on this topic please contact Yi Liu at Run Ming Law Office by telephone (+86 10 6569 3511), fax (+86 10 6569 3512) or email ([email protected]).