Ministers are being pressed on whether they will proceed with the devolution of the air departure tax after the Smith Commission agreed to give Holyrood responsibility for the levy almost a decade ago.

The air departure tax (ADT) was planned as Scotland's devolved replacement for Air Passenger Duty (APD), which is a tax on all eligible passengers leaving UK airports. 

But despite MSPs passing legislation for the tax to be devolved back in 2017 the policy has yet to be implemented.

Now the Chartered Institute of Taxation (CIOT) and Institute of Chartered Accountants of Scotland (ICAS) are calling on the Scottish and UK governments to use the tenth anniversary of the Smith Commission next year to review the implementation of Scotland’s devolved tax powers.

And as part of their demands they are seeking clarity about the future of the ADT in a bid to give people and organisations who could be affected by it - including passengers, airlines and airports - more understanding of what could lie ahead.

The tax and accountancy bodies have collaborated on a new paper Building a Better Tax System: Progress Report reviewing the development of Scotland’s tax regime in the first half of the 2021-26 Scottish Parliament.

The organisations write that clarity on the status of the devolved replacement for UK Air Passenger Duty (Air Departure Tax), in addition to proposals to assign half of VAT revenues raised in Scotland directly to the Scottish Budget would ‘provide certainty and transparency’ about the future role they will play in Scotland’s devolved tax mix.

Both proposals were put on hold in 2019 over concerns about their introduction and no firm timetable has been given for their introduction.

In recent weeks, both Holyrood’s finance and public administration committee and the Scottish Government have highlighted risks posed by the policy of VAT assignment.

CIOT and ICAS said that if the issues surrounding implementation of both policies are insurmountable, they would like to see a statement made to parliament confirming this. 

Chris Thorpe, CIOT Technical Officer, said: “The introduction of Air Departure Tax and VAT assignment have both proved difficult to implement, despite the best efforts of those involved.

“Both the Scottish and UK governments should use 2024, the tenth anniversary of the Smith Commission next year as a milestone to take stock of the tax powers that it helped to deliver to work out whether these challenges can be overcome.

“It may well be that these issues are insurmountable, and if it is the case they cannot be resolved for good reason, then both governments should say as much.

“Doing so would give taxpayers greater certainty about their future role in the devolved tax mix.”

CIOT and ICAS have recommended that the Scottish Government to find ways of improving public understanding of Holyrood’s tax responsibilities, expressing concern that income tax divergence has created a more complicated tax system that is harder for taxpayers to understand and engage with.

The organisations have also called on the Scottish Parliament and Scottish Government to work together to review how tax decisions are examined at Holyrood, following the decision of the Finance and Public Administration Committee to end its participation in the Devolved Taxes Legislation Working Group (DTLWG) in January 20235.

They write that “the issues that the group (DTLWG) was set up to consider, such as a lack of parliamentary time for tax scrutiny, the need for legislation to be regularly reviewed and kept up to date, and the ability to consult with outside experts, remain.” 

Sharon Blain, convener of the ICAS Devolved Taxes Committee added: “More effort is needed to effectively communicate how the devolved tax system works, so taxpayers can understand their rights and responsibilities.

“One of the ways we think this can be improved is by making tax decisions more visible in Scottish political calendar, so voters can see where and how decisions are made, not just the headlines. This is arguably even more important if Scottish taxes are going to diverge further from the rest of the UK.

“The Scottish Government and Parliament should restart their work reviewing the processes for making and amending tax legislation. It is disappointing that the work that was underway before the pandemic stalled.

“The issues that impact scrutiny such as parliamentary time constraints and the lack of a regular finance bill remain. With the increased need to keep legislation up to date regularly and the desire of all stakeholders to allow time for proper consultation and evaluation, improvements would be beneficial.

“There is still time in this session of parliament for the key players to get round the table and find solutions”. 

Air Departure Tax was put on hold in 2019 due to state aid concerns with the exemption for Highlands and Islands’ flights.

The proposal to assign half the VAT receipts raised in Scotland directly to the Scottish Budget was also put on hold over concerns about the methodology used to calculate Scotland’s share of VAT receipts. 

Exchanges at the finance committee last month suggest the Scottish Government is currently reluctant to push ahead with VAT assignment.

At an evidence session on the subject on November 14, convener SNP MSP Kenneth Gibson said:

“There is no enthusiasm certainly for (VAT) assignment anyway… if we, as a finance committee, with the unanimous support of our witnesses and across the political parties, are saying that assignment should no longer be looked at, that is a very strong message that we are sending to the Scottish Government on this."

Finance Secretary Shona Robison told the committee a week later in response to a question from Gibson: “I am very clear that the uncertainty associated with the proposed approach to VAT assignment, along with your point about no additional fiscal or policy powers being granted to manage it, is an inherent and currently unmanageable risk to the Scottish budget.”

A Scottish Government spokesperson said: “Scottish Ministers have made clear that they want to build a tax system that works for everyone in Scotland, while allowing for the continued delivery of high-quality public services and fiscal sustainability.

“The Scottish Government is continuing to explore all options to implement Air Departure Tax in a way that complies with the UK Government’s new subsidy control regime and protects Highlands & Islands connectivity, given the critical role this plays in the lives of those living in remote and rural areas.

“To avoid any delays in the Scottish and UK Governments coming to an agreement on the revised Fiscal Framework, it was jointly agreed to consider the approach to VAT Assignment at a later date.”