Offers on Automobiles About to Spill in UAE Ahead of VAT Implementation

Potential buyers will have a chance to purchase offer soaked automobiles before the implementation of VAT in UAE to avoid 5 percent taxes. Showroom dealers and automobile manufacturers are promoting sales campaign to sell as many cars and trying to clear the available stock before December 2017. Automobile Industry is offering discounts, loan facility, free insurance and low maintenance cost for the first year to attract customers so that they can sell out the available stock before the introduction of VAT Regime in UAE.

Car manufacturers and dealers in UAE are expecting in the increase of sales of four-wheelers, as the customers are lined-up for purchasing new cars before the implementation of Value Added Tax (VAT) Law in UAE, to obviate 5 percent VAT. It is anticipated that potential buyers will pre-pone their purchasing decision of new cars to utilize five-percent savings.

While purchasing new vehicles, 5 percent will be imposed on the value of cars whereas, on used or second-hand cars, it will totally depend on the profit margin of the seller. Now it’s at their own discretion if the taxes would be calculated on gross profit or net profit.

According to the Market experts, it is anticipated that the demand for vehicles could enhance at about 15-20 percent in Q4-17, as compared to Q4-16. And now, the fleet operators and the individual buyers are coming up to take some benefits out of the pre-VAT era.

Ian Batey, the General manager at Autodata M.E, said, “Dealerships will want to squeeze out as many sales as possible out of [the fourth quarter of 2017] rather than wait around to see what impact VAT will have on [ the first quarter of 2018].”

But buyers must be noted that “the specific VAT-based giveaways need not be in addition to all of the existing incentives dealers have padded up, such as free insurance, extended warranties, longer service contracts and the like. There is only so much that dealerships will be willing to bundle up as offers. “

“Already, there is so much of margin squeeze happening as manufacturers and dealers throw away money to move metal from the showrooms. “

Once VAT Reform implements in UAE, initially the automobile industry will have to adjust to some extent. Industry sources said that VAT is similar to a framework when the UAE Central Bank was charging rigorous upper limits on bank’s loan from the consumers in the early decades.

A spokesperson of BMW Group’s Middle East operations said, “As with VAT implementation in any other country, we expect that the impact of VAT levied in the UAE will be transferred to the consumer.” He further added that “The current market challenges are closely monitored… and will be tackled appropriately”.

“The current automotive market is focused on tactical offers and we do not expect that to stop in the immediate future. As we have already proven in the past, the BMW Group is well prepared for the new challenges. “

“With our current line-up — as well as upcoming model launches — combined with a strong dealer network, we are confident we will manage the market challenges.”

According to the sources, due to the implementation of VAT in UAE, the selling percentage of latest cars had not been declined by more than 15 percent during this year, it would be less burdensome for the automobile manufacturers. And it is compared to a depressed annual figure in 2016. A significant increase in the sales of new cars in the fourth quarter of 2017 is important for the automobile industry. If it does not happen in the similar way the industry is expecting for, the FY 2017 may bring drawback for them.

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