Owning a car in the UAE is already a distant dream for many, thanks to the hefty insurance, fuel costs, parking, and maintenance; and now the introduction of the Value-Added-Tax (VAT) has made this distant dream a daunting thought.

The implementation of the VAT is a relatively new concept in the UAE, and this is has led to a rise of doubts, and questions amongst the car buyers. And even though the rate of the VAT in the UAE is considerably low as compared to the rest of the countries, this imposition of VAT will surely increase the purchase price of the country.

As of January 2018, 5% VAT has been implemented in the UAE. Let’s see how this will affect the car market of the UAE.

The impact on the car industry in 2018

This sudden implementation of 5% VAT will hike up the price of the new cars as this VAT will be added to the transaction price of the car purchased. In case of sale of the used cars, no VAT will be applied to the private sales.

This means that a transaction done between a private owner and an end user will not be party to the implementation of the VAT. However, the case is not the same in case of registered dealers. In the case of registered dealers, VAT will be applied to the profit margin of the transaction.

The sale of the used car is expected to see a rise as the present customers will want to save their money.

The difference in VAT levied on pre-owned cars and new cars

The VAT introduced in the UAE will be charged at a standard rate of 5% on most goods and services sold across the UAE. Across most good and services this VAT will be applied at a standard rate, however, in case of car purchase and selling, the 5% VAT will be applicable to only new cars sold by the dealers to the end users.

However, the tax levied on the used cars will be based on the margin of the profit instead of the transaction price. This means that anyone who is buying a used car, from the dealer, which is still registered under the name of the original owner, will have to pay 5% on the profit that the car dealers are making by this transaction.

Other services affected by the VAT

As of 2018, the year of induction of the standard 5% VAT, fuel prices in the UAE, online car insurance in Dubai, cost of the maintenance of the vehicle, the labour and parts cost will also increase. The same is the case with the residential and commercial parking; the customers will have to 5% VAT for both of them.

A car loan from the bank

As of now, no VAT has been applied to the car instalments and the rates of interest associated with it. Most of the banks have not changed their rate of interest rates either, this means that until further notice, any application of VAT will be absorbed by the bank. However, any loan processed in the range of the Dh500-Dh1500 is subjected to 5% VAT at the point of bank loan processing fee.

The car manufactures in the UAE and the car sellers in the UAE are gearing up for the changes that are coming in the financial avenues. The induction of VAT in the economy of the UAE and the GCC is a little late as compared to the rest of the countries. However, the VAT levied on the various goods and services is 5%; which when compared to the average 19% VAT around the world.

This is a major step for the automobile industry, industry of insurance of Dubai, and other such industries. Although initially this might project out as daunting and may deter the car sellers to continue their line of work, however, once the car sellers will have the time to get accustomed to this change, the will witness a boost in their sales.

This inclusion of VAT in the UAE has put some doubts in the minds of the commonwealth. One such basic question that has housed itself in the hearts and the souls of the people is, “Why should they buy a new car before VAT is implemented?” Let’s answer this question.

Paying an extra 5% for the car is something not everyone will be willing, but after January 2018 people will not be left with a choice. Any purchase of car before January 2018 will help people save a lot of money which can be used for a lot of other purposes, such as:

  1. Buying insurance of the car

  2. Buying an extended warranty for the car purchased

  3. Buying add-on features for the cars

  4. Installing the latest entertainment system and navigation system

  5. Customizing the car

The automobile industry is slowly, but definitely going to witness a shift in the paradigm as a result of the newly launched VAT 5%. In order to avoid paying extra money for the purchase of the car, people should buy a new or a used car before the New Year sets in.

 

Published by Matthew Piggot