Concerned Group Writes Saint Lucia PM On High Travel Taxes
7th November 2019
The Hon. Allen Chastanet Office of the Prime Minister 5th Floor, Greaham Louisy Administrative Building Waterfront, Castries Saint Lucia
RE: Reduction in Taxes and Fees on Intra-regional Caribbean Travel
Dear Prime Minister,
This communication is born out of a regional movement of Caribbean citizens who have come together in opposition to the current cost of intra-regional travel and governments’ role in escalating airfares.
The issue of Taxes, Fees and Charges (TFCs) in air transport has been a source of controversy globally, not least in the Caribbean Region.
Ours, is a unique geographic space heavily dependent on air transportation to support the tourism industry whose contribution to the gross domestic product (GDP) of CARICOM Member States is significant and for some unparalleled. In short, tourism is a critical component of the region’s strategic development plan.
However, the increasing cost of regional travel threatens to stymie our progress. High and increasing TFCs have contributed to the decline in intra-regional travel in recent years.
A 2018 study by the Caribbean Development Bank (CDB) on regional air transportation found that intraregional travel’s share of total Caribbean travel declined from 15 per cent to 9 per cent between 2012 and 2017. At the same time, travel from the Caribbean to extra-regional destination increased by 6 per cent. Despite the slight rebound in intra-regional travel during 2018 reported by Caribbean Tourism Organisation (CTO), the cost of travel in region remains a significant impediment to connectivity and growth.
Moreover, a 2007 study by InterVISTAS2 Consulting commissioned by the International Air Transport Association (IATA) conducted an extensive literature review of publications and research spanning twenty-five years and concluded with overwhelming certainty that higher airfares result in reduced passenger traffic demand.
In the Caribbean, this issue of cost is exacerbated by the TFCs which, when added to the basic fares of carriers serve to make overall ticket prices devastatingly expensive for passengers.
Analysis in the aforementioned CDB study revealed that on average TFCs added 54% (40% from taxes and 14% from charges) to the cost of a LIAT one-way ticket in 2016. TFCs constitute similar proportions of fares for Caribbean Airlines (CAL) and other regional airlines. For example, a recent CAL promotion to mark its inaugural direct flight from Jamaica to Barbados advertised a fare of USD100.00 round trip.
However, when TFCs were added to this fare the total cost of travel increased by USD 154.00 to USD $254.00. In this case, TFCs amounted to more than a 150 per cent increase in base fare. A break-down of the different taxes imposed by CARICOM Governments compiled from airline websites is attached to this communication for your reference.
We have always been a proud and ambitious people committed to charting a path for the development of our respective nations. The social contract between governments and citizens has been the bedrock of the efforts of leaders to devise strategies to realise advances in infrastructure and services for a better quality of life.
A key component of the infrastructural development has been the construction and maintenance of modern airport facilities across the region. There is no denying that airports are expensive. Operations require adherence to complex rules and guidelines intended to meet global aviation standards, efficient and user-friendly passenger processing and baggage handling, as well as passenger facilities for commerce, dining and transit.
Staffing, utilities and other costs associated with daily operation also add to the burden on airport authorities. Consequently, there is almost an expectation that nations implement measures to extract revenue from passengers who utilise airports across the region to contribute not only to their operation, but also to fund aspects of government budgets.
For us, the questions are how much TFCs can authorities impose on the traveler before negative overall outcomes begin to accrue? Specifically, how much TFCs can CARICOM Governments extract from intra-regional travelers before the region begins to be negatively impacted by the lower passenger volumes?
We believe that our region is at a critical juncture, where over-taxation while meeting airport operational costs is compromising regional development and economic integration for the worse.
Having outlined the issue, it is imperative that we now communicate the objectives of this campaign. Hitherto, the focus has been on intra-regional travel. This is intentional. Changes to the TFC regime applied to travel originating from and destined for outside of CARICOM is not the focus; we are not asking governments to disrupt this income stream. Instead, our efforts are concentrated on the lowering of TFCs on travel between CARICOM States.
Accordingly, we present cogent arguments clearly demonstrating the benefits of increasing intra-regional travel to CARICOM as a collective and to individual nations. We believe that it also important to emphasise that while it may difficult to disassociate intra-regional travel from the financial performance and sustainability of airlines operating in the space, this campaign is not associated with any airline and their quest for increased passenger volumes and revenue.
Rather, what we espouse is based on principles enshrined in the Revised Treaty of Chaguaramas (RTC) signed by regional leaders optimistic about the manifestation of regional advancement through genuine functional cooperation. Principles of collective responsibility and shared destiny, principles of reduced insularity and myopia built of the realisation that by depending more on each other, we can depend less on non-CARICOM states for our social and economic progress.
This is both metaphoric and literal, since the region’s TFC policies do not appear to recognise (at least ostensibly) that intra-regional travel can be a direct substitute for international tourist arrivals. By facilitating CARICOM nationals to travel within the region we can grow each other’s economies while reducing the rate at which foreign currency leaves the region through extra-regional travel.
Numerous studies have used Price Elasticity of Demand (PED) which measures the responsiveness of demand to changes in price have predicted that if governments were to reduce TFCs, intraregional Caribbean travel would increase significantly.
Amsterdam Economics in their study aptly titled ‘Economic benefits of reducing aviation taxes in Latin America and the Caribbean’ concluded that removing aviation taxes and fees would drive efficiency and connectivity growth to the benefit of both the consumer and the wider economy3. It “could deliver businesses and individual consumers in Latin America and the Caribbean USD 5.8 to 7.9 billion of immediate direct consumer benefits, compared to a ‘do nothing scenario’.
These direct consumer benefits ripple through the rest of the economy and create wider economic benefits”. At the time of the study and based on the countries included, Amsterdam asserted that removal of aviation taxes would result in a total GDP impact of USD 87 billion and 912 thousand jobs. If passenger-based charges are also scaled back, this amount increases to USD 135 billion and 1.4 million jobs.
These figures include all GDP and employment directly and indirectly related to aviation. While the study did not directly include all CARICOM countries, few disagree that similar benefits would accrue across the board.
Moreover, CDB analysis suggests that there will be short run and (larger) long run boosts to GDP of countries that reduce TFCs. The higher the magnitude of the PED, the greater the increase in GDP, and the more likely there will be a positive net financial impact, where additional tax revenue generated by increasing economic activity would rival TFC revenue foregone. In other words, the increase in travel will likely see governments collect other tax revenue similar to the amount lost by reducing TFCs.
This would manifest in the form of revenue increases from taxes already in existence in the economy over time (E.g. Sales Tax/VAT). Instead, CARICOM Governments have effectively turned regional airlines into major tax collectors and in doing so pushed the cost of travel beyond the reach of many Caribbean citizens.
We therefore call on CARICOM Governments to re-evaluate the current TFC regime on intraregional travel. Over-taxing regional travel is counter-productive to regional connectivity and the growth and productivity of our economies. It is our hope that a renewed social partnership would be inclusive of meaningful dialogue and action with citizens engaged in this movement and our respective governmental officials.
Yours in service,
Dalano R. DaSouza, PhD
Signed on behalf of the 20,180 individuals listed in the attached petition
T: +1(246)836-7369 E: email@example.com
Cc: CARICOM Secretariat, CARICOM Heads of Government, Regional Media Houses