Taxes and staff salary

[Virgin Serbia]

How about introducing taxes? In the real world there are high taxes, in some places up to 50%. Having taxes would considerably reduce the growth of airlines. Especially with a staggered taxation system, with small airlines (defined by DOC) paying only 25% of DOC, medium sized airlines paying 30% of DOC, and large airlines paying 50% of DOC.
A small airline would have a DOC of less than 1 million. Medium sized would be up to 5 million, and everything over that would be a large airline.

Another realistic cost would be staff salary. Usually these are the single highest costs of an airline, but in AM, they are rather low. Lets say a bit in the low end, €4000 per. employee. Number of employees pr. plane is already implemented, but maybe also with 0.01 employees added to the airline for each passenger you fly, to symbolise the administrative staff. Most of the game is set before the time of the internet (and home computer), so much of the work is done manually.

[StephenM]

Salaries are included as a variable cost in the operating expenses of routes currently. Specific salaries for maintenance staff are broken down as fixed costs in the maintenance cost category.

[StephenM]

A better reply...

How about introducing taxes? In the real world there are high taxes, in some places up to 50%. Having taxes would considerably reduce the growth of airlines. Especially with a staggered taxation system, with small airlines (defined by DOC) paying only 25% of DOC, medium sized airlines paying 30% of DOC, and large airlines paying 50% of DOC.
A small airline would have a DOC of less than 1 million. Medium sized would be up to 5 million, and everything over that would be a large airline.

I'd like a better reflection of real world corporate taxes but its difficult to work it all out.

Another realistic cost would be staff salary. Usually these are the single highest costs of an airline, but in AM, they are rather low. Lets say a bit in the low end, €4000 per. employee. Number of employees pr. plane is already implemented, but maybe also with 0.01 employees added to the airline for each passenger you fly, to symbolise the administrative staff. Most of the game is set before the time of the internet (and home computer), so much of the work is done manually.

As I said already, we have maintenance staff costs included in the game and they are unlikely to change. They are still quite cheap overall though. The variable staff costs in route operations really don't reflect the real staff costs. We have enough data to implement a realistic system which has hour limits, (E.g. 900 duty/flying hours for Pilots in Europe). When you put in hour caps and combine them with annualised salaries the staff costs go up significantly. We can also replicate this with a suitable rise in variable staff costs for routes but it doesn't have the same visual impact on the balance sheet.

[CHR]

I think both staff salaries and taxes would be great ideas to slow down the game economy.
Regarding taxes, I think think the following would need to be considered (if based on Ireland).

VAT
VAT, as far as I can see, doesn't apply to airline tickets.

Corporation Tax
The corporation tax, charged on profits, is slightly more complex. It is 12.5% on the "trading income" and 25% on "non-trading income". From what I can see, the latter is concerned with income through means not related to the company's primary purpose, such as interest, foreign income or rental income (in properties one owns). There is more info here, but I tend to think that all the profit sources in AM (tickets, in-flight food and aircraft rentals) would be classified as trading income - as these are the purposes of the company  - i.e. that is what they have primarily set out to make money on.
So, the conclusion is that all the current profits should have 12.5% taken away.

Capital Gains/Losses
Capital gains are charged at 25%. It would be fairly simple to have an additional field for each aircraft (as these are the only transferable assets) which is "Last Sale Price", if a subsequent sale is greater than that amount, capital gains tax is charged on the difference (this would be relevant to people who buy planes and sell them new on the aircraft market).

Capital gains can be offset by capital losses - i.e. selling/scraping aircraft for less than they were purchased.
As far as I can see (for example), capital losses can offset capital gains, but are not otherwise tax deductible, and further more can be used as tax deductions forever into the future.

I think the formula would be constructed thus:
Calculate net capital gain/loss on each sale
Add the losses/gains together (or... subtract losses from gains)
If there is a net capital loss, add it to the capital loss field (which would need to be added for each airline)
If there is a net capital gain, subtract it from the capital loss, until there are no capital loss credits left, and then charge 25% tax on the remainder.

I would note two things about capital gains/losses - firstly, almost every airline (except brokers, and perhaps some very successful unofficial brokers) would be operating at a net capital loss, and so, none of this would be relevant to them. Furthermore, I suspect capital gains would not be applied to brokers (or arguably unofficial ones), as that is their primary source of income (just like a shop buying goods cheaply and selling at a higher price), and as such profits through these means would be charged as corporation tax.
Perhaps this could be built into the role of broker - in that official brokers are unable to operate routes, but only pay a 12.5% corporation tax on capital gains, whereas other airlines (including unofficial brokers) would have to pay 25% capital gains (as they are supposed to be flying planes, and not dealing them).

Implementation in AM
Tax should be charged monthly (rather than yearly, as everything operates monthly in AM)
Lifetime capital losses field included with the airline's data

For regular airlines:
Corporation tax (12.5%) on all "profits" that are currently listed in the bank balance (tickets + misc income + rentals - rentals - maintenance - misc costs etc.)
Capital gains/losses tax on at 25%

For official brokers:
Net capital gains added to corporation tax
Corporation tax (12.5%) on profits (rentals - maintenance +/- capital gains)

I am not sure if aircraft purchases would count as tax deductions - as they are necessary expenditure to run the business... including them thus would ruin most of the use of the tax system, as AM airlines spend all their profits on planes while expanding - not resulting in any overall slowing of the economy.
That's all I can think of... you may want someone who knows more about tax to be sure, but I think that would be a workable (albeit fairly complex to implement) solution.

[Mastafa]

I think both staff salaries and taxes would be great ideas to slow down the game economy.
Regarding taxes, I think think the following would need to be considered (if based on Ireland).

VAT
VAT, as far as I can see, doesn't apply to airline tickets.

Corporation Tax
The corporation tax, charged on profits, is slightly more complex. It is 12.5% on the "trading income" and 25% on "non-trading income". From what I can see, the latter is concerned with income through means not related to the company's primary purpose, such as interest, foreign income or rental income (in properties one owns). There is more info here, but I tend to think that all the profit sources in AM (tickets, in-flight food and aircraft rentals) would be classified as trading income - as these are the purposes of the company  - i.e. that is what they have primarily set out to make money on.
So, the conclusion is that all the current profits should have 12.5% taken away.

Capital Gains/Losses
Capital gains are charged at 25%. It would be fairly simple to have an additional field for each aircraft (as these are the only transferable assets) which is "Last Sale Price", if a subsequent sale is greater than that amount, capital gains tax is charged on the difference (this would be relevant to people who buy planes and sell them new on the aircraft market).

Capital gains can be offset by capital losses - i.e. selling/scraping aircraft for less than they were purchased.
As far as I can see (for example), capital losses can offset capital gains, but are not otherwise tax deductible, and further more can be used as tax deductions forever into the future.

I think the formula would be constructed thus:
Calculate net capital gain/loss on each sale
Add the losses/gains together (or... subtract losses from gains)
If there is a net capital loss, add it to the capital loss field (which would need to be added for each airline)
If there is a net capital gain, subtract it from the capital loss, until there are no capital loss credits left, and then charge 25% tax on the remainder.

I would note two things about capital gains/losses - firstly, almost every airline (except brokers, and perhaps some very successful unofficial brokers) would be operating at a net capital loss, and so, none of this would be relevant to them. Furthermore, I suspect capital gains would not be applied to brokers (or arguably unofficial ones), as that is their primary source of income (just like a shop buying goods cheaply and selling at a higher price), and as such profits through these means would be charged as corporation tax.
Perhaps this could be built into the role of broker - in that official brokers are unable to operate routes, but only pay a 12.5% corporation tax on capital gains, whereas other airlines (including unofficial brokers) would have to pay 25% capital gains (as they are supposed to be flying planes, and not dealing them).

Implementation in AM
Tax should be charged monthly (rather than yearly, as everything operates monthly in AM)
Lifetime capital losses field included with the airline's data

For regular airlines:
Corporation tax (12.5%) on all "profits" that are currently listed in the bank balance (tickets + misc income + rentals - rentals - maintenance - misc costs etc.)
Capital gains/losses tax on at 25%

For official brokers:
Net capital gains added to corporation tax
Corporation tax (12.5%) on profits (rentals - maintenance +/- capital gains)

I am not sure if aircraft purchases would count as tax deductions - as they are necessary expenditure to run the business... including them thus would ruin most of the use of the tax system, as AM airlines spend all their profits on planes while expanding - not resulting in any overall slowing of the economy.
That's all I can think of... you may want someone who knows more about tax to be sure, but I think that would be a workable (albeit fairly complex to implement) solution.

Very complex. It is a wonder you know so much about taxes!

[CHR]

Not so much me as the internet. I almost think a simple 12.5% (or more!) on profits as measured now would do the trick... even if it is a bit of a simplification.

[pseudoswede]

A flat tax will penalize airlines based at smaller airports. There has to be a scale.

[CHR]

A tax would be on profits, not revenue - by its definition it cannot make an airline un-profitable, just reduce profitability. Businesses in real life cope with equal tax rates.
I would suggest that a scaled system would favour small airlines, rather than equally take from all airlines. Favouring smaller airlines is not necessarily a bad thing, though.

[Virgin Serbia]

A tax would be on profits, not revenue - by its definition it cannot make an airline un-profitable, just reduce profitability. Businesses in real life cope with equal tax rates.
I would suggest that a scaled system would favour small airlines, rather than equally take from all airlines. Favouring smaller airlines is not necessarily a bad thing, though.

Take 12.5% from a small airline and it will be quite a bit of that airlines profits. Take 12.5% from a mega carrier with a DOC of 20+ mio and he won't even notice it. We need a taxation system that favors the smaller airlines. Big airlines can afford big taxes, small airlines can't.

[1993matias]

<1 million: 7,5%
<5 million: 10%
<7,5 million: 12,5%
<12 million: 15%
<20 million: 20%
>100 million: 30%

just examples, I hope this gives inspiration

[Virgin Serbia]

<1 million: 7,5%
<5 million: 10%
<7,5 million: 12,5%
<12 million: 15%
<20 million: 20%
>100 million: 30%

just examples, I hope this gives inspiration

1 million what? Daily Operating Profit? Value of the airline?

I like it, but over 50 million (presuming it is DOP) it should be higher than 20-30%.

[Virgin Serbia]

For a possible future makeover of Airline Mogul, maybe a more precise system of taxation would be due, with import taxes included. In Russia taxes on non-russian planes are HUGE! This would allow for a greater demand for aircraft leasing and Soviet types.

[CHR]

I tend to think protectionist policies, like tariffs on plane imports, wouldn't be implemented. The game tends to take a "what if you could do anything" approach - such as allowing you to have base in any airport on your continent (and even other continents) - and a logical extension of that is "what if my Russian airline could use Western planes".

With regards to taxation, the primary motivation for taxing airlines is to slow the economic growth rate. If you only charge high taxes on the large airlines (the ones with excess money - for whom money is not an issue in expansion), then you do little to slow expansion. To really slow expansion, you need the high taxes in place on smaller (in terms of profit) airlines.
Pseudoswede was suggesting tax be tied to airport base size, rather than simple profit. This kind of approach would work to make the growth more comparable between large and small airports. Consider that even an airline based in the biggest airports will start out earning a few 100k DOC (and enjoying that low tax rate...), but they would be the ones you want to hit with a larger tax - because they are the ones who will expand quickly.

I tend to think that taxes, if implemented at all, for realism should be kept equal for all companies. I think other methods should be employed to make larger airports less favourable. Higher gate rental fees (which are fixed for any sized aircraft) would work well in this regard. Also making landing/processing fees higher (or indeed, less dependent on the aircraft size, if smaller aircraft size considerably decreases the costs of landing etc) could work to make larger airports less attractive. The reason you don't/shouldn't see many small aircraft at large airports is that there isn't enough capacity to have everyone flying on tiny little planes - the runways and gates would get choked with them - it is more sensible to have a smaller number of larger planes. I think this dynamic could be fairly simply represented by proportionally increasing fees for smaller aircraft in larger airports. This would in turn make large airports less favourable to start off at, as start-up airlines have to use small aircraft, 'cause that's all they can afford.

The other thing is, 12.5 % off an airline with a DOC of 1 million is only 125k - hardly the value of a small plane, indeed it would only slow your growth rate by... well... 12.5%... or 1 plane less in every 8 (i.e. instead of buying 8 ATRs, I can only buy 7). When you think about it that way, it isn't such a large imposition on any airline (one should note, though, that Ireland's corporate tax rate quite is low compared to most of the world).

[StephenM]

A flat tax will penalize airlines based at smaller airports. There has to be a scale.

Well continue the Irish example. We use a tax credit system, where we could have a €100,000 tax credit for all airlines plus a €60,000 credit for new airlines at the first 3 years for example (Discounting by €20,000 each year).

Airline A has €10mil turnover, and a tax liability of 1.25mil, take off the €100k tax credit and the net liability is €1.15mil.
Airline B has a €500k turnover, and a tax liability of €62,500, take off the €100k tax credit and the net liability is 0 (Assuming no refunds on tax credits).

It should weight things heavily enough to allow new airlines start up and grow to remain low in terms of tax. I used the above figures simply as an example.

[Virgin Serbia]

I tend to think protectionist policies, like tariffs on plane imports, wouldn't be implemented. The game tends to take a "what if you could do anything" approach - such as allowing you to have base in any airport on your continent (and even other continents) - and a logical extension of that is "what if my Russian airline could use Western planes".

Still, it would make for one hell of an interesting game Go for the expensively taxed but fuel efficient Boeing/Airbus, or the cheap but less capable Tupolev/Ilyushin. Or to lease the Boeing/Airbus. It would allow for more tactics and options.