x Abu Dhabi, UAEWednesday 17 January 2018

New security tax on air passengers

A new tax for air travellers will be modest and not hurt economic competitiveness, analysts say.

ABU DHABI // Airline passengers will pay a Dh5 aviation tax from the end of this month to fund new security measures.

The announcement by Sheikh Mohammed bin Rashid, the Vice-President and Prime Minister, was published in the official gazette.

Children under 2, cabin crew and transit passengers are excluded from the levy, which begins on July 28. The statement did not say whether it would be applied on both outbound and inbound journeys or what security measures it would pay for.

If the tax were applied solely to residents departing from Dubai and Abu Dhabi airports, it would raise more than Dh73.4 million in a year.

"The tax appears moderate compared with similar charges at European airports," said Martin Kohlhase, the regional vice president of corporate finance at Moodys. "It is unlikely to have a distorting effect in the competition between various business hubs in the Gulf."

The UAE is home to some of the world's largest international airlines and a vibrant tourism and trade landscape, with Dubai International Airport expected to become the world's biggest international air hub by 2015.

Financial analysts have encouraged moderate taxes to bolster public finances while keeping the UAE's free-trade image as an important competitive advantage.

"I've been arguing for some time that taxes should be increased, not just in Dubai but in the UAE as a whole," said Simon Williams, regional chief economist for HSBC.

"A pickup in the tax take would strengthen public finances, reduce the reliance on oil, impose greater discipline on spending and enhance planning. Given all the UAE's other strengths and the scale of the tax take elsewhere, increasing taxes modestly here would have next to no impact on economic competitiveness."

The Government of Dubai earns about Dh7 billion a year in taxes, according to a recent bond prospectus, primarily made up of customs tariffs and taxes on the profits of foreign banks.

Governments and airports worldwide are spending increased sums on boosting security to combat terrorist threats.

The International Air Transport Association has also been pushing for new security measures. New technology, such as "sniffing machines" that can detect explosives particles, and body-scan X-rays, is being evaluated.