Impact of VAT on Automobile Industry in UAE (Updated)

The automobile industry in UAE was facing a tough time due to excess stock and was gearing up with new VAT era carefully. Stakeholders were considered that the final legislative framework of VAT agreement could provide some clarifications for the operational purposes, for imported and local vehicles.

Several car manufacturers and dealers were making the automobile industry highly competitive specifically for the SUV, mid- size and SUV segment that time. Car manufacturers and dealers lured customers just by providing a discount on the new purchase, loan facility, low maintenance cost and free insurance for the first quarter of year. Dealers were doing that just because to clear out the available stock before the introduction of VAT in UAE.

It is estimated that a number of people using cars in UAE are expected to grow at a rate of 5 per cent CAGR approximately 10.3 million in 2015 to 13.2 million in 2020.

Since the implementation of VAT from 1st January 2018, it has impacted the car industry as you have to pay 5% VAT if you are buying the new car from the agency. You need not pay Value added tax if you are buying the car on the bank loan. In case of second-hand car (used car), same as the new the car you have to 5% tax if you are purchasing from the agency or register dealer.

The VAT marks the true beginning of implementation across the GCC. The pact establishes the common principles of the VAT system which has to apply in each GCC State and provides the structure on which domestic the VAT legislation will be developed. The publication of the pact is that means we have clarity over the principles which is every State will be required to enact and can confirm our understanding is that how VAT in the GCC will impact the automotive sector.

Above quote were just an assumption which is occurred before the introduction of VAT.  Go ahead read continue How VAT is Impacting Automobile Industry in UAE.

License registration and inspection fees doesn’t affected by Value added tax. However, renewal price has been increased so prices of cars also been increased since the tax implementaion. Not only vehicle cost is enhanced but also,  gas products, insurance, reinsurance, diesel, petrol and other oil has been increased since 5% VAT imposed by the Govt.

Value added tax is affecting the maintenance of cars since the oil price has been enhanced and also, spare parts price is increased. It is not only influencing service cost but also influencing repairing cost. Therefore, we suggest you buy car insurance policy as car repairing cost expecting increase more.

The implementation of the VAT is a common phenomenon for the development of the economy and recently, The VAT is implementing in several others countries. So VAT is a new concept only for UAE members not for other countries. We do not anticipate any noticeable change in demand once VAT is embedded into the pricing mechanism of the vehicles.

Car manufacturers were experiencing a significant rise in sales of cars. As users were replacing their existing cars with newer models before and after the year-end. Users had been purchased the newer model of cars before the implementation of VAT to avoid 5 percent tax.

“There is overabundance inventory, therefore supply far exceeds demand. Hence, retail prices were under pressure that is seriously hurting margin and operational profitability.” 

VAT on Car Loans

As per the guide, no VAT is applicable on the car loans or the concerned interest rates charged by the banks however banks may do at their own decision.

Mr Suhail said “this means the banks will absorb any application of VAT for the time being. However, bank loan processing fees, usually in the range of Dh500 to Dh1,500 are subject to 5 per-cent VAT”.

VAT on Used Car

Obed Suhail, a senior writer at ServiceMarket.com, a marketplace for home services wrote that you have to pay 5 percent VAT on the car’s value, if you are buying a brand new car from the company or dealer.

As per to the Mr. Suhail, it is still not clear that how can the tax be applied to that sale, as it can either be applied to the actual invoiced amount i.e. a discounted figure or to the mentioned selling price.

Annual Renewal Costs

No VAT is applied to either inspection fees or car license registration but in December, the prices of both government services increased by 17 percent from Dh300 to Dh350 and 20 percent from Dh140 to Dh170 respectively.

VAT on Services and Repairs

VAT is applicable to services like oil changes and also car repair services such as the purchase of spare parts due to which Car maintenance has become more expensive. VAT is also applicable on car washing at the petrol station.

Consumption Costs

Recharge cards and Salik tags are not included in the VAT and even parking fees. But have to pay the VAT for both commercial and residential parking and if charges for parking are included in your residential rent then it will not be applicable for you. However, the UAE resident must also account all the consumption cost on petrol diesel which now attracts VAT

VAT on Car Insurance

VAT is applicable to car insurance due to which there is an increase in the budget. This is in addition to new norms that came to existence at the beginning of 2017 for the car insurance industry which included increasing the maximum liability for third-party damage from Dh250,000 to Dh2 million. Due to these conditions and the other changes the cost of car insurance policies was increased across the board. It was found that the drivers in the UAE are paid an average of 14.9 percent for their car insurance in 2017 than in 2016.

Here you read, How VAT is Affecting the Automobile Industry in UAE.  For more updates stay tuned with us.

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