How VAT will Affect Car Sales in the UAE

The first day of January next year will prove to bring a massive change in the GCC market as Value Added Tax (VAT) is slated to make its debut in the region. While it is calculated to generate more than AED 12,000,000,000 in the first year, the UAE’s automotive sector is all geared up and vigilant. With the current challenge posed by excess inventory, stakeholders pin high hopes that the final legislative framework will enable for greater clarity on both local and imported vehicles.

The tax, which is reportedly set at a value of five percent, will have long and short-term effects to those operating in the automotive industry. While it is true that prices will be affected in the long run, given that VAT is payable on new car sales, an increase in sales is expected as buyers prepone vehicle purchases to prevent paying the extra tax.

With both dealers and distributors striving to reduce inventories of 2017 models, an influx of used cars is expected, with purchasers choosing a well-maintained or approved vehicle over a new car, following the launch of VAT.

Though there is no clarity yet as to whether the VAT will be calculated on the RSP (recommended selling price), the final invoice price, or the showroom sticker price, there is a huge likelihood that authorities could lean towards the RSP as it is how it is done in other markets such as the USA and the UK.

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