Air Departure Tax: consultations and environmental report

Consultation One: Policy for an overall 50% reduction in Air Departure Tax by the end of the current session of the Scottish Parliament

Background

1. Air Passenger Duty (" APD") is a duty of excise first introduced in 1994 which is levied on the carriage, from a UK airport, of chargeable passengers on chargeable aircraft. It becomes due when a flight with chargeable passengers occurs and is payable by the operator of the aircraft. The amount due is dependent on the final destination and class of travel of the chargeable passenger.

2. The Smith Commission convened following the 2014 Scottish independence referendum and published the Smith report ^[1] on 27 November 2014 recommending, amongst other things, further devolution over elements of taxation and public spending to the Scottish Parliament. Paragraph 86 of the report recommended that "the power to charge tax on air passengers leaving Scottish airports will be devolved to the Scottish Parliament. The Scottish Government will be free to make its own arrangements with regard to the design and collection of any replacement tax, including consideration of the environmental impact."

3. This proposal, and others contained in that report, were taken forward in the Scotland Act 2016 ^[2] which received Royal Assent on 23 March 2016. Following the commencement of section 17 of this Act on 23 May 2016, the Scottish Parliament now has the power to legislate for a tax which will replace APD in Scotland.

4. As a consequence of these measures, the Scottish Government introduced the Air Departure Tax (Scotland) Bill ^[3] ("the Bill") before the Scottish Parliament on 19 December 2016. The Bill makes provision for Air Departure Tax (" ADT"), a tax to be charged on the carriage of chargeable passengers on chargeable aircraft by air from airports in Scotland. The tax is to be payable by aircraft operators.

5. Under paragraph 26 of the fiscal framework agreement ^[4] reached between the Scottish Government and UK Government, APD will cease to apply in Scotland from 1 April 2018 and, if the ADT Bill is enacted, ADT will replace it from that date.

Overview of the policy and its development to date

6. The Scottish Government aims to reduce the overall burden of ADT by 50% by the end of the current session of the Scottish Parliament. Important decisions have yet to be taken on how the 50% reduction could be delivered, including how the reduction will be distributed across tax bands ( e.g. short-haul and long-haul flights) and tax rates and the profile of the reduction to ADT. Tax bands and tax rate amounts are not set out in the Bill, and will instead be set out in secondary legislation in the autumn and will be shaped by, amongst other things, the policy and by responses to this consultation.

7. Public discussion and debate on this policy and the provisions underpinning the Bill began with the Scottish Government's publication of a consultation document, "A consultation on a Scottish replacement to Air Passenger Duty" ^[5] , on 14 March 2016.

8. In addition to that consultation, the Scottish Government established a stakeholder forum on 6 August 2015 to provide expert input into the development of policy and legislative proposals for ADT. Chaired by the Cabinet Secretary for Finance and the Constitution, membership of the stakeholder forum was formed from a broad range of sectors including airlines, airports, travel organisations, business representatives, tax accountancy and legal professional bodies and environmental organisations.

Strategic objectives of the policy

9. The strategic context for the Scottish Government's aims can be found in Scotland's Economic Strategy ^[6] , which sets out the ambition to create a more cohesive and resilient economy that improves the opportunities, life chances and wellbeing of every citizen in Scotland. Internationalisation is one of the four priorities for sustainable growth which underpins this strategy.

10. The Scottish Government believes that a 50% reduction in the overall burden of ADT by the end of the current session of Parliament will boost Scotland's air connectivity and economic competitiveness, encouraging the establishment of new routes which would enhance business connectivity and inbound tourism and help generate sustainable growth.

11. The Scottish Government also wants to create an environment which encourages airlines to base more aircraft in Scotland. If successful this could create employment opportunities (such as flight crew, cabin crew, engineering and ancillary support roles) in Scotland, through direct, indirect and wider business impacts and net additional Gross Value Added.

12. APD is currently one of the highest taxes of its kind in the world. Scotland's airports are competing on a world stage to secure new routes and capacity. Reducing the tax burden will help ensure a more level playing field with many other European airports competing to secure the same airlines and similar routes.

13. It is estimated that approximately 48% of APD revenues currently generated in Scotland is accrued from short-haul flights and approximately 52% from long-haul flights. There are therefore a number of ways in which the policy of a 50% reduction in the overall tax burden could be applied in order to meet the overall objective of incentivising route development and improving connectivity. This could include adopting a differential approach in how the tax reduction is applied across tax bands and tax rate amounts in order to deliver a 50% reduction in the overall tax burden.

Summary and next steps

14. The Scottish Government plans to reduce the overall burden of ADT by 50% by the end of the current session of the Scottish Parliament. It is recognised that there are a number of different ways in which a 50% reduction in the overall tax burden could be applied across all tax bands and tax rate amounts.

15. The objectives of the policy are to boost Scotland's air connectivity and economic competitiveness, encouraging the establishment of new routes which would enhance business connectivity and inbound tourism and help generate sustainable growth.

16. Detail on tax bands and tax rate amounts will be delivered in secondary legislation in the autumn. In preparing these final plans the Scottish Government will take into account the responses received to both this consultation and the consultation on the Environmental Report produced as part of the Strategic Environmental Assessment process that has been undertaken on the policy plan.

How can I provide comment on this consultation?

17. Public views and comments are invited on both this consultation for the policy plan for an overall 50% reduction in ADT by the end of the current session of the Scottish Parliament and the consultation on the Environmental Report which is set out later on in this document.

18. Responses to the following questions on the policy plan should be submitted by Friday 15 September 2017 and these can be submitted online, by email or by post. Details on how to submit responses has been set out in the introductory 'How to respond' section of this document.

Consultation questions:

1. Do you support the Scottish Government's policy plan to reduce the overall burden of ADT by 50% by the end of the current session of the Scottish Parliament? Please answer 'Yes' or 'No'.

2. Please explain your answer to question 1.

3. If you answered 'Yes' to question 1, please provide any suggestions you may have on the most effective way, in your view, in which a 50% reduction in the overall ADT burden should be applied across tax bands and tax rate amounts in order to achieve the Scottish Government's overall connectivity and sustainable growth objectives.

For example, should: (a) all of the ADT reduction only be applied to short-haul flights; (b) all of the ADT reduction only be applied to long-haul flights; (c) ADT be reduced equally by 50% across all flight types; (d) some other differential combination be applied?

4. Please provide any other comments you have on the policy plan.