Since its implementation on 1st January 2018, the Value Added Tax in the GCC has been a success. Not to mention that several industries that come under the local VAT taxation laws have been affected either way.
The GCC, being a group of oil-rich nations, is considered to be a prime automobile importer. The GCC nation citizens enjoy high-levels of disposable income, therefore buy automobiles that are built with the latest cutting-edge tech that are usually new in the market. Unlike Africa and South-East Asia, GCC nations buy first-hand new cars every year. Inkwood Research discusses in detail about the automotive sector in its report Global Induction Motor Market.
The introduction of the Value Added Tax in the Gulf Cooperation Council will lead to some issues and considerations for the region’s automotive sector. Given the fact that the VAT is a complex issue since it applies to all the sectors. This requires all the parties in the chain to consider their positions and understands what may or may not impact their business, ensuring their ability to implement the relevant legislative orders for the VAT.
Although the VAT rate is 5%, it is unavoidable that the sales of automobiles will be one of the main focal points of implementation of the VAT in the GCC. The average rate of VAT is around 19% in other OECD nations. The supply chain that provides for the automotive retail business is also taken into consideration because it includes a number of service providers such as vehicle manufacturers, local importers as well as distributors.
From all the GCC nations, Saudi Arabia and the UAE are the major automotive markets that are characterized by low fuel prices and high disposable income per capita. These economies also relish low customs duty and a constantly growing population. Since there are no manufacturing facilities in the GCC and that they are importing for their domestic needs, the increase in automotive price will impact the automobiles demand in GCC.
From the date of implementation of the VAT, buyers are obligated to pay the VAT amount with each new purchase of a car. However, if one is buying the car on a bank loan, they need not pay the VAT. Also, if one is buying a second-hand car, the person has to pay the VAT tax for it.
On the other hand, fees for license registration and inspection do not affect the VAT. However, the renewal prices have been increased; as a result, the prices of vehicles have also increased. Not only the vehicle costs are proliferated but also other on related products such as re-insurance, petrol, diesel, gas products and insurance local authorities have imposed the VAT.
The Value Added Tax is affecting the maintenance of vehicles given that the oil prices and also of the spare parts have risen. This has influenced not only the service costs but also the repairing costs of the vehicles, which in turn has increased the need for car insurance. Please refer to Inkwood Research’s website in the industries section for more content on automotive and allied markets across the world.
Alongside the increase in direct costs of the automobiles, the costs of allied products and services have also grown, thus making the buying and owning an automobile dearer.