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Argentina Levies New Flyer Tax Just as Flight Ban About to Lift: Huh?

Madhu Unnikrishnan

September 25th, 2020

Flights in Argentina could resume next month, ending one of the world’s strictest and longest air-travel bans. Although this is good news and will restore connectivity in the country and breathe life into its grounded airlines, it comes at a price: A new 35% tax on all international airline tickets, effective immediately.

The government essentially shut down the national airspace on March 20, banning all non-emergency passenger flights in an effort to halt the coronavirus. Although it has been spared the horrors faced by neighboring Brazil, World Health Organization data show that Covid cases and deaths continue to climb in Argentina. The government has said it will ease the flight ban and other restrictions next month but will reimpose them if cases climb more steeply after the re-opening.

Argentina already has steep levies on international airline tickets. The country imposes a 37% in airfare and departure taxes, as well $69 in fees for international departures. The new 35% will put a dampener on demand and slow any economic recovery in the country, IATA said. Even before the government announced the new tax, IATA estimated that air travel demand will be 67% lower this year than last, and revenues will be off by $3.3 billion. This will imperil more than 19,000 airline jobs and could reduce airlines’ contributions to the economy by almost $2 billion, IATA said.

The government has not made clear if the new tax revenues will stay in the aviation industry. In the U.S. and many other countries, ticket taxes are used to fund security, air traffic control, and airport and aviation infrastructure improvements. But in many countries, the taxes go to the general fund and are used to patch holes in the budget.

This long has been a problem in Latin America. Governments in South America see airline travel as the preserve of the rich and use the industry as a “cash cow,” diverting revenues from airline taxes to projects unrelated to aviation, Peter Cerda, IATA regional vice president for the Americas, said on the Airline Weekly Lounge podcast last month. This thinking hasn’t changed, despite the recent (pre-pandemic) proliferation of low-cost carriers in the region.

The effect of these high taxes has been that air travel in much of South America is not as common as it is elsewhere. Much of South America is mountainous, difficult to traverse with road and rail, but high taxes and lack of government support to encourage air travel has prevented airlines in the region from reaching their potential market size, Cerda said.

The new tax won’t help. “This decision could not have come at a worse time,” said Maria Jose Taveira, IATA Argentina area manager, adding, “the imposition of further government taxes will be counterproductive to reviving demand and hinder the airlines in contributing to the socio-economic recovery of the country and its people.”

Madhu Unnikrishnan

September 25th, 2020

Photo credit:  Aerolineas Argentinas

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