How Will Vat Affect Car Prices And The Automobile Market

The UAE auto industry has been facing precarious times since the past two years. With the year 2018 starting with Value Added Tax (VAT); another set of challenges are expected to be faced by automobile companies. In the UAE, car supply exceeds demand for new vehicles and there is an oversupply of pre-owned vehicles. Hence, retail prices are under constant pressure to be reduced that could affect profit margins as well as operational profitability. Car dealers also try to entice customers with lower maintenance/service costs and free insurance for the year of purchase.

With the VAT further increasing car prices by 5%; automobile companies do not know how demand can be made equal to supply. It is predicted that in the short term before VAT kicks in, car sales will increase as customers would want to avail the no VAT prices. Hence forth in the first half of 2018, car sales will experience a slight dip as customers reel from the effects of VAT on their monthly budgets and standard of living. It is expected that car sales will return back to normal after UAE residents become used to VAT and continue their lives as before. Dealers are expected to bear partial VAT costs so that sales of automobiles do not experience a significant fall.

The UAE automobile industry may face challenges but the positive factors of this market insure that this industry keeps growing steadily. Positive factors include; low fuel prices, low custom duty, high disposable income and satisfactory tax structures. Moreover, the affordable financing and insurance options also make it easier to own a car in the UAE. Hence, it is speculated that VAT will not cause a significant wave in the automobile market.