Zero VAT on domestic flights may boost Denmark domestic tourism

Wednesday, March 6, 2024

The recent announcement by the Danish government to introduce zero VAT (Value-Added Tax) on domestic flights has sparked optimism among politicians and local airports, aiming to revitalize domestic air routes and ensure fair competition among airlines. This policy shift, advocated by politicians like Social Democrat Anders Kronborg, seeks to remove the VAT barriers that previously discouraged airlines from operating domestic routes due to unfavorable tax regulations.

Kronborg, representing Esbjerg, has been a staunch supporter of this initiative, motivated by the potential to re-establish a flight route from Esbjerg to Copenhagen—a route that has seen numerous failed attempts by various airlines in the past. The introduction of zero VAT is expected to level the playing field, enabling new and existing airlines to compete under the same tax conditions, regardless of the proportion of domestic versus international flights they operate.

The optimism surrounding this policy change is not without its critics, who argue that it merely represents a bureaucratic exercise, as many airlines operating domestic flights are already exempt from VAT. Kronborg acknowledges this perspective but insists that the move from unequal to equal competition conditions is a step forward. He believes that this could inspire new ventures or encourage existing ones to reconsider domestic routes that were previously deemed unviable due to the tax disparity.

The case of Esbjerg’s previous attempt to sustain a flight route to Copenhagen highlights the challenges faced by local initiatives in overcoming economic and regulatory hurdles. The route, launched by a group of local businessmen under the airline ES-air in 2015, was short-lived, lasting only 28 days. Despite this failure, Kronborg remains hopeful that the new VAT exemption will encourage local actors, such as those around Midtjyllands Lufthavn, to step in where others have retreated, buoyed by the more favorable tax landscape.

As Denmark moves towards implementing zero VAT on domestic flights, the implications for smaller airports and potential new market entrants will be closely watched. If successful, this policy could stimulate growth in domestic air travel, connecting regions within Denmark more effectively and sustainably, provided that new or revitalized routes can achieve long-term viability.

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