Record tourism figures posted last year by the Canaries brought an unprecedented boost for the region’s tax revenue but the windfall is unlikely to prompt a fall in rates.
Nearly 18 million holidaymakers visited the Canaries in 2024, an increase of just under 8% compared to the previous year. Almost 90% of the arrivals were from outside Spain and the growth in numbers sparked a major jump in the revenue generated by the Canaries’ version of VAT, known as IGIC.
The sales and services tax, which is levied at a much lower rate than mainland Spain’s VAT, brought in 2.3 billion euros to the regional coffers, 190 million more than in 2023 and a full 23% up on 2019.
IGIC now accounts for almost two thirds of the revenue raised by the Canaries’ own taxes (which include import duties and inheritance tax) and the bumper years of late have prompted renewed calls for the government to lower the general rate of 7% to ease the cost of living pressure on the population.
However, judging by the controversial decision to extend the 7% rate this year to a range of products and services that attracted a lower rate of 4-5% until now – among them baby wipes, energy drinks and takeaway food -, a change of heart looks very unlikely.
Critics of the IGIC system point out that, as it is not a progressive tax based on earnings but rather applies to all sales, it penalises those on lower earnings or income. They also note that higher inflation in recent years has played a key part in the growth in IGIC revenue and the windfall is therefore less of an incentive for the government to keep inflation under control.
Photo: Freepik
