How VAT impacts car ownership in Dubai

Owning a car in the UAE is a big decision since it involves many hefty expenses including fuel, insurance, parking and maintenance. For those UAE residents who were struggling to figure out if they can afford to own a car, this decision has become even more difficult after the implementation of value-added tax (VAT). Let's try to demystify VAT and help you understand its immediate effects.
Cost of buying a car
The application of VAT depends on whether you are buying from the agency or dealer or directly from an individual owner. If you are purchasing a brand new car from the agency, or a pre-owned car registered under the agency or dealer, then you'll have to pay 5% VAT on the car's value. The verdict is still out on how it will be applied, as it can either be 5% of the RSP (recommended selling price) or the actual invoiced amount (which could be discounted). On the other hand, buyers of used cars still registered under the original owners but being sold through dealers will have to pay 5% on the profit the car dealers are making.
Car loan from the bank
No VAT applies to car loan installments and the associated interest rates as of yet. Most banks have not changed their interest rates either, which means the banks will absorb any application of VAT for the time being. However, bank loan processing fees, usually in the range of Dh500-1,500 are subject to 5% VAT.

Annual costs
While the VAT does not apply to car licence registration and inspection fees (Tarkhees), the prices were increased a month ago. The car licence renewal fee was increased by 17 per cent from Dh300 to Dh350, and the inspection fee went up by more than 20 per cent from Dh140 to Dh170 in December 2017. You should also budget for a 5% VAT on your car insurance and reinsurance.
Consumption costs
Dubai residents are now facing higher consumption costs because 5% VAT applies to petrol, diesel and other oil and gas products at the pump. Salik tags and recharge cards are exempt from VAT. While it doesn't apply to RTA parking fees, you can expect to pay 5% VAT for both residential and commercial parking. If your residential rent includes charges for parking, then it won't apply to you.
Servicing and repairs
Car maintenance has become more expensive as 5% VAT is also applicable on periodic servicing, including oil change, car wash at the gas station, etc. It even applies to car repair services and purchase of spare parts.
We have yet to see how VAT will affect sales of cars as well as other products and services in the coming months, but it is likely that there will be a decline in the number of sales. However, since many companies are currently offering discounts and promotions, you can still find plenty of good deals in the market.
- The author is senior writer at ServiceMarket.com. Views expressed are his own and do not reflect the newspaper's policy.
With inputs from CarSwitch