VAT on vehicles has raised a significant concern for motor vehicle industry across Gulf. Already interacting with an extreme inventory of vehicles, dealers will have to pay VAT, from January 2018. Therefore, this season vehicle market segments will be in furry before car prices rise and demand falls. For auto industries across UAE, 2016 became a challenging time anticipated to an overstock of used vehicles and reducing demand on new ones. It really is presumed that vehicle sellers will face a challenging situation this season as well. With the execution of VAT, the expense of living will grow and buyers may well not be eager to pay VAT on autos, which will reduce the demand for cars. In addition, increasing variety of manufacturers in the automobile industry has brought up the competition to another level, hence lowering margin on autos specifically on sedans and SUVs. Because of this, car retailers with the support of financial institutions want to entice customers with special deals such as a discount on new autos, higher loan, zero-maintenance cost, and free insurance for the first year.
VAT Effects on Automotive Industry
Execution of VAT will impact the car market segments. In the long run, you will see a growth in car prices, as traders must pay VAT on sales. For a while, buyers will attempt to get cars before VAT implementation to avoid extra charges on vehicles bringing marginal climb in needs of vehicles. To get rid of pre-owned cars, auto dealers will attract customers with special deals toward the finish of the entire year to generate high sales revenue before 2018 starts. VAT has a significant move in the dynamics of vehicle industry for both consumers and traders. The consumers will keep an eye on increasing cost of products before VAT execution that may automatically raise the demand for luxury goods and cars. Consumers usually swap their automobiles with new models before or following the season ends, which increases the sales for traders. This season consumers would want to replace their autos with newer models to pass up extra 5%, as growing demand of autos will provide traders a chance to sell as many cars as before the season ends. Traders also desire to evaluate sales promotions to remove existing inventory of pre-owned and new automobiles before VAT. Execution of VAT in 2018 provides some problems to businesses functioning in this huge auto industry. They could have to handle requiring concerns like work capital, cash flow, costs, logistics, different market and inventory handling. It really is to be observed that the purchase of the pre-owned vehicle may have a new VAT rule in comparison to buying a fresh car. This difference might be due to the non-recoverable VAT already paid during the first purchase of the automobile. An optional program might be utilized to avoid 'duty on taxes' cascading impact. This scheme is often found in other countries and may be created in UAE as well. Even after exceeding all the concerns, it is expected that the auto industry will see new ways to continue growing.