The debate on the widely criticised air traffic tax is entering its next round. The long-awaited reduction of the tax has satisfied no one, especially in light of recent developments at EU level.

On October 6 2011 Advocate General Juliane Kokott issued an opinion in which she backed the European Union's proposal to include the aviation sector in the EU Emissions Trading Scheme. The scheme will be fully implemented on January 1 2012. As the air traffic tax was introduced by the German government as an eco-surcharge, the Air Traffic Tax Act was closely linked to the scheme and its developments. The mechanism between the two instruments foresees a reduction in the German air traffic tax once the scheme is in place. The overall financial burden for German airlines should not exceed €1 billion.

In mid-October 2011 the Federal Ministry of Finance announced its plan to reduce the distance-related air traffic tax by 5.5 % in 2012. European flights will be taxed €7.56 instead of €8, mid-range flights €23.62 instead of €25 and long-haul flights €42.52 instead of €45. A proposal presented by German airlines and airports to reduce the tax for each of the three segments by €1.50 failed. The ministry's proposal, which is yet to be finally approved, is unlikely to compensate fully for the charges under the scheme. The tax reduction is a step in the right direction, but the ministry's proposal seems undifferentiated in its outcomes and fails to reflect a number of essential facts.

According to the ministry, by the end of June 2011 the tax had raised €434 million.(1) Of this amount, more than €231 million had been raised through the taxation of European flights, €174 million through long-haul flights and €28 million through mid-range flights. These proportions are not reflected in the ministry's proposal.

The proposal also ignores differences in the price sensitivity of different categories of passenger. Passengers on European routes are more price sensitive than passengers on long-haul flights. Furthermore, return tickets on intra-German routes are taxed twice, since such routes comprise two take-offs within Germany. This unequal burden is also mirrored in the latest air traffic statistics. German air traffic was hit hard by the new tax, and the budget sector was worst affected. According to the German Airports Association ADF the budget flight market contracted by 3.6%, while intra-German flights were down 24.7%.

Since the tax was introduced, German regional airports – particularly those which are close to borders with other countries – have reported a massive loss of business. Airports which are situated not far from Germany (eg, Mulhouse, Maastricht, Salzburg, Zurich and Amsterdam-Schipol) have benefited greatly at their expense. In contrast to the situation in Germany, the Netherlands introduced a ticket tax on July 1 2008, but abolished it just one year later due to its adverse effects on the economy and the air traffic industry.

The forthcoming air traffic tax cuts represent a good opportunity to even out the playing field for German airports and passengers. However, in light of the imminent inclusion of aviation in the EU Emissions Trading Scheme, and bearing in mind the Dutch ticket tax experience, the German legislature would be well advised to consider abandoning the tax all together.

For further information on this topic please contact Ulrich Steppler or Katja Helen Brecke at Arnecke Siebold by telephone (+49 69 97 98 85 0), fax (+49 69 97 98 85 85) or email ([email protected] or [email protected]).


(1) On June 30 2012 the German government must report to Parliament on the exact outcome of the tax collected in 2011.