Reform of UK departure tax a win for Caribbean tourism

While industry officials welcomed changes to the U.K.’s Air Passenger Duty (APD) announced by British Chancellor of the Exchequer George Osborne, the battle over the tax is far from over.

The changes announced in Osborne’s budget presentation on March 19 marked an improvement for many destinations, most notably for the Caribbean, but the APD, a tax on travel created to compensate for damage that air traffic poses to the environment, has not gone away.

What has happened is that the APD will be simplified into a two-band system next year, down from the convoluted four-band system currently in effect for all flights originating from the U.K.

The two-band change takes effect in April 2015. Until then, the four-band system remains, exacerbated by a previously announced increase effective April 1.

Under the new two-band system, Band A will cover short-haul flights of less than 2,000 miles from London, while Band B will cover all long-haul flights of more than 2,000 miles from London.

The current Bands C and D will go away. That cuts the tax substantially for travelers to China, India and Brazil and the Caribbean, who will pay the same rate as travelers to the U.S.

The APD, introduced in 1994 as an environmental tax, has risen steadily over the years. Since 2007, it has increased 470%.

The current APD for a family of four traveling in economy class on a 4,400-mile flight from London to the Caribbean is approximately $551 (increasing to $564 on April 1), while the APD for the same family flying to the U.S. is $444 (increasing to $458).

Caribbean tourism officials have long claimed that the APD has resulted in a decline in arrivals from the U.K. Placing the Caribbean in Band C, they said, put the region at a disadvantage compared with the U.S., which is in Band B.

The U.K. is an important source market for the Caribbean, especially in the Eastern Caribbean countries of Barbados, St. Lucia, Antigua and Barbuda and St. Kitts and Nevis, which have seen the biggest drop in U.K. arrivals in recent years.

Visitor numbers for 2013 revealed that less than 1 million travelers from the U.K. visited the Caribbean, a 1.4% drop from 2012, which in turn had seen a 10% drop from 2011.

Jeffrey Vasser, director general of the Caribbean Hotel and Tourism Association (CHTA), said the disparity in the APD had been a crucial factor in the decline in arrivals from the U.K. to the Caribbean.

Osborne’s rationale for the move was “to help British businesses strengthen links with high-growth markets and to go further to make the U.K. an attractive option for business visitors and tourists,” according to his budget announcement.

The reform, a long time in the making, sparked extensive, expensive lobbying efforts on the part of tourism officials, airlines, diaspora, trade associations and government representatives on both sides of the pond.

Caribbean officials were quick to weigh in.

“The Caribbean region has finally achieved one of its goals and will be fairly taxed in comparison with a flight to the U.S.,” said Richard Doumeng, CHTA president.

While Antigua and Barbuda’s minister of tourism, John Maginley, lauded the change, he said, “We really would like them to remove it altogether, but the compromise was to get Band C out. Now it’s nondiscriminatory, although it is still a heavy tax.”

Beverly Nicholson-Doty, chair of the Caribbean Tourism Organization, called it “a complete victory for the Caribbean, which has lobbied against the unfair system that placed the U.S. at a competitive advantage.”

Wykeham McNeill, Jamaica’s tourism and entertainment minister, agreed.

“We’re heartened that the Caribbean’s recommendation for the use of a two-band system has been accepted,” he said.

A Virgin Atlantic spokesman called the reform “a welcome simplification to remove some of the biggest distortions of the current system. The government has recognized the damage APD is having on exporters and the traveling public alike.”