Value Added Tax (VAT) is set to make its GCC debut on 1st January 2018, and while it is estimated to generate over AED 12,000,000,000 in the first year, the UAE’s auto sector stands prepared, yet cautious. With the current challenge of excess inventory, stakeholders believe the final legislative framework will allow for greater clarity on local and imported vehicles.
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Set at a value of five percent, both long and short-term effects of VAT are likely to be seen and felt by those operating in the automotive industry. While prices will be affected in the long term, as VAT is payable on new car sales, the short term could see a spike in sales as buyers prepone vehicle purchases to avoid paying the additional tax.
With dealers and distributors focusing on reducing inventories of 2017 models, there is likely to be an influx of pre-owned cars, with buyers opting for a well maintained or certified pre-owned vehicle over a new car, following the introduction of VAT.
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Although it is not entirely known whether the VAT will be calculated on the RSP (recommended selling price), the showroom sticker price, or the final invoice price, authorities could be leaning towards the RSP as that is how it is tackled in other markets such as the United Kingdom and the United States of America.
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