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.” 

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

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