THE SOUTH African airline industry is currently being strangled by ever-increasing operating costs on the one hand and rapidly escalating government taxes and parastatal charges on the other. On the cost side, the fuel price has increased by more than 70% and this cost item currently constitutes between 30 % and 40% of an airline’s direct operating cost.
On the tax side, the newest increase to befall the airline industry is an increase in the so-called Air Passenger Tax (APT). The Minister of Finance recently announced a dramatic 27% increase in the APT on international flights and a 25% APT rise for regional flights with effect from October 2011. The APT is a tax that has existed since 2000, the proceeds of which are paid into the National Revenue Fund. This tax is collected from passengers by the airlines as part of the ticket fare and on international flights the APT currently amounts to R150 and on regional flights, R80. The obligation for the payment of the APT is created in terms of the Customs and Excise Act. This Act provides that an Air Passenger Tax is chargeable for every passenger departing from an airport in South Africa to a destination outside of South Africa.
These financial increases, like that of the APT, all add to the cost of an air ticket coming at a time when the air travel market is extremely price-sensitive as South African consumers wrestle with the greatest economic downturn in eighty years. In response to the announcement of the increase in the APT, Chris Zweigenthal, the CEO of the Airlines Association of SA (AASA), issued the following statement: “AASA notes with great concern, the proposed increases in the Air Passenger Tax . The airline industry is currently struggling with the impact of cost increases brought about by tariff increases such as those from State-owned enterprises like ACSA, still to be finalised through the regulatory process and increased ATNS charges as well as escalating fuel costs.
“The volatile state of the industry means that further costs are likely to be absorbed by the airlines themselves. We believe that the proposed tariff increases need to be reviewed urgently to ensure the sustainability of the airline industry in South Africa.” (See also Page 22 : IATA slams SA taxes). AASA has also written a letter to the Minister of Transport to protest against the ever-increasing service charges and taxes which impact on the total cost of an airline ticket which in all probability will have to be absorbed by the airlines themselves. As nearly all government services to the aviation industry operate on the basis of user pay and that ACSA dividends have, since 1993, contributed large amounts to the national fiscus, the lumping of a tax like the APT on air travel in the first instance is unfair and an increase therein is definitely unwarranted.
Some in the airline industry also question the very legality of imposing the APT in the first place. Those that oppose the APT on legal grounds believe that Article 15 of the Chicago Convention outlaws this very type of tax. Article 15 of the Convention contains a sentence that reads: “No fees, dues or other charges shall be imposed by any contracting state in respect of the right to transit over or entry into or exit from its territory.” In order for the APT to fall within the prohibition of Article 15 there are two questions that must be answered in the affirmative.
The first question is whether a government tax can be equated with a “fee, due or charge” as outlawed in Article 15? The second question is a matter of whether the APT is charged in respect of “the right to transit over or enter or exit from a country’s territory”.
With respect to both questions, in the case of the South African APT, the most probable answers are in the affirmative. On the meaning of the words, “fess dues or charges”, although the Chicago Convention does not define these words, the Russian and Spanish texts of the Convention use words in Article 15 that translate unequivocally as “taxes”. Also, the practise in English is to regard the word “due” as a synonym for a “tax”. This all indicates that a due is synonymous with a tax. The fact that the APT is called a tax and not a due is immaterial.
Regarding the second question, the wording of section 47B of the Customs and Excise Act clearly indicates that the ATP is levied on passengers carried on aircraft departing, namely: exiting South Africa. It is also noteworthy that the APT is only levied on cross-border flights and is not applicable to domestic carriage by air.
Admittedly, South Africa is not the only country to charge an APT. There are currently about 10 States that charge an Air Passenger Duty/Tax.
However, given that the Chicago Convention currently has some 190 State parties, the small number of States levying APTs indicates that there is a lot of doubt that the practise of the 10 States is legal in terms of the Convention. As indicated, the legality of the APT is so questionable in light of the prohibition contained in Article 15 of the Chicago Convention, that were the airlines to challenge the APT in court, their chances of success are extremely good. However, rather than proceeding down the rocky road of litigation, it would seem sensible for Government and the airlines to agree a settlement with respect to the APT that suites the interests of both parties.
