Photo by Raphael Nogueira
In a Twitter Spaces regional dialogue hosted by Kev Politics, Antigua’s Prime Minister Gaston Browne has conceded that high travel taxes are negatively impacting intra-regional travel.
Challenged to address the issue, Browne signalled his intention to lobby his regional counterparts to operationalise a reduction in air travel taxes. The Prime Minister, who is slated to assume Chairmanship of CARICOM in July, asserted that the travel ‘pause’ occasioned by the pandemic provides an opportunity to experiment with lower travel taxes. With regional travel being minimal and little to no revenue being collected from travel taxes, the Prime Minister expressed the view that there was not much to lose if taxes were reduced by as much as 50%.
Defending the lack of progress in the past, he revealed that much of the tax revenue was tied to loan repayments. “At the time it represented a challenge, even for Antigua and Barbuda, because our travel taxes for example were securing a loan of US$94mn that was actually incurred by the former administration. So, to cut by 50 percent would have been difficult, even though we were looking at the possibility of even reducing the travel taxes by about 25 percent at the time” the Prime Minister said.
For the Caribbean, one of the sectors most impacted by the COVID-19 pandemic has been travel. The International Air Transport Association (IATA) called 2020 the worst year in the history of travel demand, with revenue passenger kilometres (RPKs) declining by 65.9% compared to 2019. Even before the advent of the pandemic, the issue of Taxes, Fees and Charges (TFCs) in air transport has been a source of controversy globally, not least in the Caribbean.
While the region is heavily dependent on air transport to support the tourism industry, several studies have found that high and increasing TFCs have contributed to the decline in intra-regional travel in the run-up to its collapse in early 2020. As a consequence, there have been repeated calls for regional leaders to slash taxes in order to reverse the trend of declining regional travel and business.
Analysis in 2016 revealed that on average, TFCs added 54% (40% from taxes and 14% from charges) to the cost of intra-regional travel. This is believed to have increased since then. While the Prime Minister cautioned that it would be difficult to effectively gauge the response (elasticity) to tax reductions, numerous studies, including a report from the Caribbean Development Bank, have used price elasticity of demand to predict that if governments were to reduce TFCs, intra-regional Caribbean travel would increase significantly.
In committing to take the issue before his own Cabinet in Antigua and Barbuda, the Prime Minister predicted that cheaper travel could be a way to incentivise fully vaccinated persons to take to the skies once again, provided that a new regional travel bubble is set up.
“I can tell you that my colleagues are looking at it seriously and I believe that we should be able to convince them to do something now. It could even be for a temporary period, if we say that we do it between now and the end of the year” Browne was quoted as saying by the Antigua Observer.
With similar public commitments made by regional leaders in the past, it remains to be seen, however, if lower travel taxes will become the reality in a region saddled with growing public debt.
This is a lead article from Caribbean Insight, The Caribbean Council’s flagship fortnightly publication. From The Bahamas to French Guiana, each edition consists of country-by-country analysis of the leading news stories of consequence, distilling business and political developments across the Caribbean into a single must-read publication. Please follow the links on the right-hand side of this page to subscribe, or access a free trial.