Caribbean tourism officials who had lobbied hard for a change in Britain's controversial Air Passenger Duty tax were handed a significant setback late last month from the U.K.'s new government.

The tax took effect last November and was touted as an environmental measure aimed at taxing aviation's carbon emissions.

Caribbean spirits had been buoyed when reports surfaced in May that the British government planned to scrap the tax on passengers in favor of a tax on planes.

The intended effect would have been to force airlines to make efforts to fill all their seats, since full flights would be taxed proportionately less than half-empty planes.

At the time, Hugh Riley, secretary general of the Caribbean Tourism Organization, said that action "speaks volumes to us about the importance that the U.K. government has attached to this matter of the APD."

But the hopes fostered by those reports were dashed following an emergency budget presentation in the U.K. on June 22. The new coalition government headed by Prime Minister David Cameron made no changes to the existing tax, setting the stage for the previously announced tax increase to take place in November.

U.K. Chancellor George Osborne did dangle a carrot, saying the government would "explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty, which could encourage fuller planes," the London Telegraph reported.

The current tax is calculated on a four-tier banding system set at intervals of 2,000 miles from London. The amount of tax each passenger must pay is based on the distance between London and the capital cities of the destination countries.

Washington, and thus the U.S., is in Band B (2,000 to 4,000 miles from London) because the distance from London to Washington is 3,600 miles.

Caribbean countries are in Band C because their capitals are between 4,001 and 6,000 miles from London.

It's the competitive nature of the different tax rates that is the issue. Previously, only two bands were used to tally the tax: $16 for European economy-class travel and $62 ($130 in premium classes) for all other destinations, including the Caribbean.

On Nov. 1, 2009, those distance-based, per-passenger ticket duties from the U.K. to the Caribbean jumped to $82 in economy and $164 in premium class.

This November, the per-passenger fees will jump to $123 in economy and $247 in premium class.

While the CTO welcomed Osborne's announcement to examine the tax more closely, no one is optimistic that it will actually go away.

CTO Chairman John Maginley said he was concerned that the discriminatory tax bands remain in place and the tax increases scheduled for November appear set to go ahead.

"The tax is unfair to the many families in the Caribbean community in the U.K. who travel frequently to the region," Maginley said. "We simply should not be in a tax band different from the U.S."

The CTO plans to put the matter again before the new British government, according to Maginley.

"It's clear that because our economies are so heavily reliant on tourism that this tax is effectively a tax on our countries' exports," Maginley said. "We'll be reviewing the position with organizations such as the World Trade Organization."

The ink wasn't even dry before Caribbean leaders jumped into the fray to voice their objections and condemn the move, submitting a paper to the British government requesting that Caribbean countries be viewed as one group, so that the tax for flights to the region be calculated on the distance between London and Bermuda (3,445 miles), the closest island to London.

Like the U.S., Bermuda is in Band B.

In the wake of the introduction of the first phase of the increase last November, Caribbean governments and tourist sectors fought a spirited but vain battle to have the tax removed.

They feared that the second phase of the tax this November could cripple the region's tourist industry by further escalating the cost of travel from the U.K. to the Caribbean.

In addition, they argued that the band system was inherently unfair because, for example, a flight from London to Los Angeles was taxed at Band B levels even though the distance was almost twice the distance from London to many spots in the Caribbean.

Tourism ministers were joined in their lobbying efforts by dozens of hotel firms and industry associations, including the CTO, the Caribbean Hotel & Tourism Association, the European Tour Operators Association, the Association of British Travel Agents, the World Travel and Tourism Council and IATA.

All predicted that the increased costs of travel would trigger a decrease in visitor traffic from the U.K.

And it did.

Travelers from the U.K. to the Caribbean in 2008 totaled 1.2 million, according to the CTO. U.K. visitor arrivals in the Caribbean in 2009 fell 11.8%. Particularly hard hit was the eastern Caribbean, including Antigua and Barbuda, Barbados, Dominica, Grenada, Montserrat, St. Lucia, and St. Vincent and the Grenadines.

First-quarter figures for 2010 from the U.K. to the Caribbean are incomplete, although St. Lucia said arrivals were down compared with Q1 2008 and blamed the tax, the volcanic ash and labor unrest at British airlines. Figures for 2009 are not considered a barometer since most Caribbean islands saw falloffs due to the global recession.

The CTO said arrivals declined 4.3% for Europe as a whole in Q1 2010.

Allen Chastanet, St. Lucia's minister of tourism, said, "We are leading a charge with the Americans and also the Canadians to say that this is an illegal tax. The British government is charging a tax over people's airspace. We are going to try everything to show that this is not the way forward."

This report appeared in the July 12 issue of Travel Weekly.


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