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The "fuel surcharge" is usually a tax dodge. British Airways, which has the most notorious surcharge in the industry, does it because the taxes only apply to th

The "fuel surcharge" is usually a tax dodge. British Airways, which has the most notorious surcharge in the industry, does it because the taxes only apply to the fare itself; if they split out fuel charge separately, they only get taxed on the base fare.

mikeash 10y ago
Interesting! I assume there's some requirement to at least vaguely reflect the actual cost of fuel, so they can't just charge $1 for the "fare" and put the rest as a tax-free "fuel surcharge"?
greglindahl 10y ago
The entire point of VAT is that it takes care of situations like this one; is there something funny about VAT for fuel?
- ubernostrum 10y ago
  Not saying I agree, but I believe the general argument is that if tax was already paid/collected when the fuel was purchased, unbundling it from the fare price prevents it being taxed again.
  - jdmichal 10y ago
    How are fully-consumed process inputs handled in VAT? It's easy to calculate non-consumed inputs. They paid $x per kg of aluminum. Each finished product contains y kg. So the "cost basis" for each product is $x * y. But what happens to, say, the electricity used to melt the aluminum before being poured into molds?
    - kgwgk 10y ago
      I think it works as follows: say you make sales for one million plus 20% VAT. You get paid 1.2mn, but 200k are for the taxman. However, you already paid VAT for your inputs, say 30k for 150k in materials and 20k for 100k in electricity. You then give to the state only 150k: the 200k you collected minus the 50k you paid (i.e 20% of the 'Value added' 1mn-150k-100k).
      - jdmichal 10y ago
        Ah, that makes sense. Relatively easy to calculate compared to the itemization I was thinking of -- at least, I'm assuming it can be aggregated in a way that makes the calculations easy.
  - greglindahl 10y ago
    VAT only taxes added value. So, if VAT applied to fuel, the airline gets a VAT rebate for everything that they buy (including fuel), and then pays VAT on their total sales. Nothing is taxed twice. If there's some tax benefit to splitting a fuel surcharge out, obviously taxes on fuel aren't an ordinary VAT...
- lmm 10y ago
  Fuel duty is its own thing in Britain, so at a complete guess maybe fuel duty subsumes/replaces VAT but then companies aren't able to offset it like they can with VAT?
ropiku 10y ago
Also taxes are paid when you redeem miles for an award flight. BA is happy that you have to also pay ~1/2 of the ticket price in cash besides the miles.

mikeash 10y ago

Interesting! I assume there's some requirement to at least vaguely reflect the actual cost of fuel, so they can't just charge $1 for the "fare" and put the rest as a tax-free "fuel surcharge"?

greglindahl 10y ago

The entire point of VAT is that it takes care of situations like this one; is there something funny about VAT for fuel?

ubernostrum 10y ago
Not saying I agree, but I believe the general argument is that if tax was already paid/collected when the fuel was purchased, unbundling it from the fare price prevents it being taxed again.
- jdmichal 10y ago
  How are fully-consumed process inputs handled in VAT? It's easy to calculate non-consumed inputs. They paid $x per kg of aluminum. Each finished product contains y kg. So the "cost basis" for each product is $x * y. But what happens to, say, the electricity used to melt the aluminum before being poured into molds?
  - kgwgk 10y ago
    I think it works as follows: say you make sales for one million plus 20% VAT. You get paid 1.2mn, but 200k are for the taxman. However, you already paid VAT for your inputs, say 30k for 150k in materials and 20k for 100k in electricity. You then give to the state only 150k: the 200k you collected minus the 50k you paid (i.e 20% of the 'Value added' 1mn-150k-100k).
    - jdmichal 10y ago
      Ah, that makes sense. Relatively easy to calculate compared to the itemization I was thinking of -- at least, I'm assuming it can be aggregated in a way that makes the calculations easy.
- greglindahl 10y ago
  VAT only taxes added value. So, if VAT applied to fuel, the airline gets a VAT rebate for everything that they buy (including fuel), and then pays VAT on their total sales. Nothing is taxed twice. If there's some tax benefit to splitting a fuel surcharge out, obviously taxes on fuel aren't an ordinary VAT...
lmm 10y ago
Fuel duty is its own thing in Britain, so at a complete guess maybe fuel duty subsumes/replaces VAT but then companies aren't able to offset it like they can with VAT?

ropiku 10y ago

Also taxes are paid when you redeem miles for an award flight. BA is happy that you have to also pay ~1/2 of the ticket price in cash besides the miles.