The latest package of central government measures follows a familiar path used in recent inflation-fighting moves, with a focus on the Canary Islands where the impact remains modest for island households. The cabinet approved a set of steps aimed at softening the economic and social consequences of the war in Ukraine. The measures are designed to be practical rather than sweeping and will take effect starting January 1. A key element is a six-month VAT reduction from 4% to 0% on all basic needs. The plan covers a wide shopping cart from bread to eggs, milk, fruit, and vegetables, and reduces the levy on oil and pasta from 10% to 5%. In the Canary Islands, where tax margins differ, this package does not operate within the same framework as the mainland. The IGIC, the regional equivalent of VAT, remains zero for these essentials in the archipelago.
What products are taxed on the islands?
The Vice President and Finance Minister affirmed that the Canary Islands will remain unaffected by the mainland tax changes because taxation is handled differently here. As Pedro Sánchez outlined the fiscal measures to ease inflation, the vice president noted that 97% of consumers in the Canary Islands already enjoy zero IGIC on basic foods, gas, fuel, and electricity. In contrast, the mainland generally applies a 21% VAT, though some items were reduced during the pandemic. In the Canary Islands Economic and Financial Regime, the indirect tax stands at 7% under the Canary Islands Indirect General Tax, and basic needs already enjoy zero tax. A central government proposal to cut VAT on basic goods to zero would not alter the situation in the islands since IGIC applies differently, with dairy, eggs, meat, fish, and vegetables having long enjoyed exemptions since 2012. Deputy Finance Minister Fermín Delgado has stressed that the islands have always maintained a margin of tolerance for essential items, acknowledging the archipelago’s remoteness and distinctive economic conditions.
Since when has zero rate been applied?
The IGIC framework, established under Law No. 4/2012 dated 25 June, already applies a zero rate to a broad range of essential goods. These include items such as water for human and agricultural use, cheese, vegetables, oil, medicines, books, magazines, newspapers, and passenger transport by air or sea within the islands. Other products, including cattle slaughter, canned meat production, textiles, leather goods, paper and cardboard, mining, and most vehicle repairs fall under a general rate of 7%. The current measures for the Canary Islands reflect the region’s ongoing fiscal policy and its response to inflation, aligned with the archipelago’s specific regime and regulatory context.
Could prices be lowered even more then?
Regional authorities describe further reductions as very challenging while maintaining zero tax for essentials. The Vice President and Secretary of the Treasury has indicated that achieving additional price cuts would require significant market interventions that are not easily found. The Canary Islands are pursuing selective, targeted, and temporary actions to address the inflation that has affected households and businesses. Experts suggest that inflation may ease somewhat next year as global conditions stabilize, though the path remains uncertain.
How is the fuel and income tax deduction?
The regional government confirms it will continue to support measures for fuel, gas, and electricity that reach the vast majority of consumers. It is also continuing to reimburse the special fuel tax to thousands of small companies, generating substantial savings. In addition, personal income tax relief for middle and low income earners is set to take effect on January 1. With inflation still a concern, the administration emphasizes balancing relief with prudent fiscal management, aiming to cushion the most vulnerable while keeping long-term stability in view.