Norwegian regional airline Widerøe is looking into the viability of more than 30 routes in its network if the country’s government goes ahead with an increase in value added tax (VAT).
The airline said any increase would come on top of other recent rises in taxes and charges that have already rendered some of its routes unprofitable.
Norway has several rates of VAT—12%, 23% and 25%—covering varying goods and services. Currently, air fares attract the lowest level of tax, but a recommendation from a specialist group is to raise it to either of the higher rates to simplify the tax system.
The Norwegian government has sent the matter to a public consultation process.
“We assume and hope that this will not be implemented,” Widerøe-VP strategy & infrastructure Terje Skram told ATW.If the higher rate is implemented, he said “most of our domestic commercial routes will no longer be profitable.”
The result, he added, will be that the airline, which provides a network of domestic services linking remote areas of Norway to major population centers, would have to consider the basis for 37 of its routes.
Already, he said “some of these routes are no longer profitable after huge increases in government taxes after 2015.” These included an 88% rise in a CO2 levy, two earlier VAT increases that took the level from 8% to 12%, plus a passenger fee introduced in 2016.
Ironically, however, if the latest suggested rate of VAT is imposed, the government would likely spend more through an increase in subsidies for Public Service Obligation routes (known as Essential Air Services in the US).
Widerøe made representations to the government on the proposed VAT rise earlier this month. A date for a decision on any increase has not yet been set.