VAT Impact on Automobile Industry

In present time, the automobile industry in UAE has been suffering from issues due to excess stock of vehicles and the schedule inclusion of VAT has resulted into a grave concern for industry players in the region. Stakeholders think that the final legislative framework of VAT agreement could provide some explanations for the operational objectives, for imported and local vehicles.

At present, various car manufacturers and dealers are making the automobile industry highly competitive particularly for the SUV, mid- size and SUV segment. Car manufacturers and dealers are striving to attract customers just by providing a discount on the new purchase, loan facility, low maintenance cost and free insurance for the first year. Dealers are doing this just to clear out the available stock before the launch 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.

Once the launch of VAT would take place from 1st January 2018, it is expected to impact the car industry in both short term and long term. In the long term, the prices of cars will increase as VAT would be applicable on the sales of new cars. In the short term, this may lead to a rise in demand for cars before the implementation of VAT as the buyer always tries to tackle the price rise.

The implementation of VAT is a general phenomenon for the development of the economy and currently, VAT is already applicable in several others countries across the world. So VAT is a new concept only for UAE members not for other countries. There is no anticipation of any perceptible change in demand once VAT is implanted into the pricing mechanism of the vehicles.