Economic Effects of VAT on Passenger Transport
12.71
From 2013 to 2014
In this study for DG TAXUD, TML, together with CASE and IHS, examined the effects of VAT pricing on the passenger transport market (by road, rail, air, and, to a lesser extent, water) in the European Union.
In a first phase, TML and CASE mapped the current state of the commercial passenger transport market. Using data from TREMOVE and ETISplus, TML calculated the demand for transport (in number of trips and passenger kilometres) in the different transport modes and geographical markets (urban/national non-urban/international intra-EU/international extra-EU). This then allowed the extent of any market distortions to be estimated.
The main conclusions were as follows:
The second phase, led by IHS, was tasked with compiling an overview of the current VAT rates and other taxes applicable to passenger transport. This included identifying exceptions. The whole exercise was verified through a survey of national experts from the Member States.
Then, based on the data collected, a list of possible market distortions was drawn up.
Finally, we had to estimate possible policy measures that could address these distortions. Three models were used to calculate these scenarios: the TREMOVE model (for macro-traffic effects and ticket and VAT revenues), the EDIP model (for effects on the economy as a whole), and a city pair model designed for this project (for detailed estimates of transport demand on specific routes).
The scenarios run through are:
The assessment of each of the scenarios can be found in the final report in annex. Overall, the expected effects on transport demand are small to moderate, although large changes may occur at the level of individual market players.
In a first phase, TML and CASE mapped the current state of the commercial passenger transport market. Using data from TREMOVE and ETISplus, TML calculated the demand for transport (in number of trips and passenger kilometres) in the different transport modes and geographical markets (urban/national non-urban/international intra-EU/international extra-EU). This then allowed the extent of any market distortions to be estimated.
The main conclusions were as follows:
- National traffic represents 99% of trips, but only 2/3 of person kilometres.
- In cities, metro is the most widely used mode of transport (46% of all trips), but the longest trips are made by train. Bus is in between the two.
- Air transport is especially important within international markets, but 7% of domestic person kilometres are also done by plane (corresponds to 0.5% of trips).
- Most domestic trips are made by bus (more than 80%), especially for short distances.
- Rail transport is a major market player especially in Western Europe.
The second phase, led by IHS, was tasked with compiling an overview of the current VAT rates and other taxes applicable to passenger transport. This included identifying exceptions. The whole exercise was verified through a survey of national experts from the Member States.
Then, based on the data collected, a list of possible market distortions was drawn up.
Finally, we had to estimate possible policy measures that could address these distortions. Three models were used to calculate these scenarios: the TREMOVE model (for macro-traffic effects and ticket and VAT revenues), the EDIP model (for effects on the economy as a whole), and a city pair model designed for this project (for detailed estimates of transport demand on specific routes).
The scenarios run through are:
- Output VAT is brought to national standard levels in all intra-EU markets (e.g., for BE: 21%).
- Output VAT is set at national reduced levels in all intra-EU markets (e.g., for BE: 6%).
- As scenario 1, but place of taxation changes from performance to origin.
- As scenario 2, but place of taxation changes from performance to origin.
- Current VAT rates unchanged, but place of taxation changes from performance to origin.
- Current VAT rates unchanged, but Article 148 of the Directive on exemptions for air and maritime transport is abolished.
- As scenario 6, but instead of abolishing Article 148, exemptions are extended to all modes.
- As scenario 4, but extra-EU transport is also taxed.
- As scenario 8, but all non-VAT taxes are abolished (as they can be seen as quasi-VAT).
- Administrative simplification for VAT declaration across national borders.
- VAT rates for national transport remain unchanged, but all international transport gets a 0% VAT rate.
The assessment of each of the scenarios can be found in the final report in annex. Overall, the expected effects on transport demand are small to moderate, although large changes may occur at the level of individual market players.
