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Canarian VAT on the rise?

Friday April 27, 2012

Canarian VAT on the rise?

The proposal to raise IGIC, the Canary Islands equivalent of VAT, from 5% to 7% has been met with stiff opposition from numerous business associations worried about the possible effect on tourism. The suggested increase in IGIC has been mooted as a way to ensure that essential services, such as schooling and health care provided by the state across the archipelago can continue to operate. At the moment, it is being suggested that the rise will be implemented as soon as at the end of June this year.

However, many of the businesses which depend on tourism across the islands have met the suggestion with extreme resistance. On Lanzarote, for instance, the president of ASOLAN – the Lanzarote Association of Hotels and Apartments – Susana Perez, felt the need to remind local politicians that historically attempts to raise value added tax has had a dampening effect on the tourist industry.

In particular, there are fears that it will lead to declining visitor numbers to the islands, as goods and services become more expensive with the addition of a higher IGIC rating. At present, the exchange rate between the pound and Euro would go some way to offset an increase of 2% in IGIC, but there is no guarantee that the current more favourable rate will continue to give British tourists more Euros in their pockets.

In addition, representatives from the four hotelier associations for the islands of Las Palmas de Gran Canaria, Santa Cruz de Tenerife, Lanzarote and Fuerteventura are in agreement that such a move would contradict the Pact on Competitiveness and Quality in Tourism which each of these organisations is about to ratify next Friday with the president of the Canarian Executive, Paulino Rivero.

Various hoteliers were also at pains to point out that the agreements they have already put in place with tour operators for this year would make it impossible to recoup additional taxes from tourists who have already booked their holidays. In the case of Gran Canaria, at least 50% of the island’s tourism is secured via tour operators, whilst in Fuerteventura the percentage of holidays organized by this part of the industry is even higher.

As a result, the reality is more likely that this sector of the economy will lose up to 100 million Euros by raising the current tax rate, according to Fernando Fraile, the president of the Federation of Hoteliers and Tourism in Las Palmas. Meanwhile, the president for the Association of Hotel and Tourism Businessmen in Fuerteventura, Antonio Hormiga, suggested that at the very least the increase should be delayed until the beginning of next year. All were in agreement that this is not the kind of action that will help to stimulate the local economy.

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