UAE automotive market slumps 8% post VAT introduction

ABU DHABI: UAE vehicle market is dealing with one of its biggest crisis in the last few decades as the vehicle sales fall by 8% during the first quarter of 2018. Despite a strong economic growth, the sales went down primarily due to the introduction of Value Added Tax (VAT) in the country.

Things were pretty smooth until a few years ago and the sales figure grew from 291,637 units in 2012 to an all-time high of 408,252 in 2015. However, since the last two years, there’s a constant dip in vehicle sales and the trend continues in the first quarter of 2018. Following the best year in terms of vehicle sales (2015), everyone anticipated an upward momentum in coming years, but sales dipped down to 311,048 units in 2016, a massive 24% decline. Furthermore, the sales went down to 276,081 in 2017, that’s again a dip of 11.2% as compared to sales in 2016.

One of the primary reasons of this slowdown has been the consistent decline of oil prices in the international market. Also, the number of vehicles registered in UAE and exported to Africa and other GCC countries also went down drastically owing to a weak demand in these countries.

In January 2018, the Saudi Arabia and UAE governments introduced Value Added Tax (VAT) for the first time ever in their respective countries. Considering that gulf nations have always attracted foreign labour and capital with the promise of tax-free living, this was a major turn of events. The government is eyeing to increase its revenue as the oil prices go lower internationally and therefore has levied a 5% VAT on a majority of goods and services. More countries which are members of the Gulf Cooperation Council like Bahrain, Kuwait, Oman, and Qatar are in line to introduce VAT, however, have delayed the implementation until 2019.

Overall 61,520 units of cars and Light Commercial Vehicles (LCV) were sold in the first quarter of 2018 across UAE which is 8% lesser as compared to the sales last year. Market leader Toyota sold 20,887 units, 0.3% lesser than the first quarter of 2017. Industry experts expect this crisis to continue and further deepen. Michel Ayat, CEO of AW Rostamani Automotive, the dealership for Nissan, Infiniti, and Renault said: “My expectation is that the market will hit rock bottom this year itself”.

For the moment, all dealerships are actively running their Ramadan promotions, hoping to convince some buyers to buy a new model or at least trade up so that they get some respite from the sales crisis.