Last week, the Government launched an emergency plan to cushion the blow of the war in the middle east on the citizens’ pockets. The most visible measure is the reduction of VAT on fuel, from 21% to 10%, which in practical terms translates into around 30 cents less per liter of gasoline and about 20 euros in savings per tank.
On the peninsula, thousands of drivers They have already noticed it at the pump since the royal decree It came into effect last Sunday. In the Canary Islands, however, this discount does not exist. And it is basically the consequence of a tax system that has been operating for centuries in a completely different way from the rest of the country.
The Canary Islands do not pay VAT. When the Government cuts VAT on fuel, it is modifying a tax that is not applied in the archipelago. In the Canary Islands, the Value Added Tax does not apply, nor does the Special Tax on Hydrocarbons, which do apply in the rest of the national territory. Instead it works the Canary Islands General Indirect Tax (IGIC) and its own regional tax on fuels derived from petroleum.
This is because the Canary Islands have a special tax regime within Spain and the European Union, with historical roots linked to its status as an outermost territory.
Type difference. The IGIC works in a similar way to the VAT, but its percentages are much lower. While the general VAT rate is set at 21%, the general IGIC is set at 7%. And if the reduced VAT is 10%, the reduced IGIC drops to 3%. This means that every time a driver fills up the tank in the Canary Islands, the consumption tax he pays is less than half that of a driver in Madrid or Seville.
In global figures, fuels on the islands support a tax burden of around 25%compared to 50% of the national average. This is done to compensate for the structural extra costs involved in being an archipelago far from the continent, without oil pipelines and with all the energy imported by ship.
Margins. The gap in tax rates limits the scope for action on the islands. When the State reduces the VAT on fuel from 21% to 10%, it cuts 11 percentage points. If the Canary Islands Government wanted to apply an equivalent reduction, it would have to take the IGIC from 7% to 0%, and even then. In this way, the economic impact on the consumer’s pocket is not the same, although the proportional effort is comparable. This explains why the savings generated by this type of measures are structurally greater on the peninsula than on the islands.
In the Canary Islands they already paid less, but the increase is suffered more. Before the crisis broke out, gasoline was cheaper in the Canary Islands thanks to REF (Economic and Fiscal Regime of the Canary Islands), the application of IGIC instead of VAT and price regulation. But when oil becomes more expensive, the effect is especially abrupt in the archipelago. Most consumer products in the archipelago arrive by ship, including fuel. The rapid rise in crude oil also affects maritime transport, which in the end makes everything more expensive.
According to data from the Ministry for the Ecological Transition collected by Dieselogasolinethe average accumulated price of a liter of 95 gasoline in the Canary Islands has gone from 1,181 euros to 1,383 euros since the conflict began.
The strategy that the Canary Islands are considering. The regional government of Fernando Clavijo is already working on its own anti-crisis shield. The central measure is to bring the IGIC of fuels to zero rate, eliminating the current 7%. It also contemplates a 99.9% bonus on fuel tax for transporters and deductions in the regional section of personal income tax. Of course, in order to be able to carry it out without breaking the spending rule, the Canary Islands Executive has asked the Ministry of Finance to make this limit more flexible.
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