DUBAI: Ease the VAT (value-added tax) pain … UAE’s retailers across sectors are going out of their way to make sure customers will not ditch the buying habit in the first crucial weeks after the tax roll-out.
For sectors such as automotive retail, the stakes are that much higher because the 2018 model-year vehicles are streaming in. And the last thing dealers want are their gleaming showrooms packed with new vehicles but with few buyers coming in for them. VAT or no VAT, a new car or SUV is still the single biggest purchase for consumers, and more so for the cost-conscious among them. So the challenge for dealerships, especially those in the volume business, is to remove the VAT concern.
Which is why Al-Futtaim Motors in its first 2018 campaign states emphatically that “our prices are locked … Purchase a new Toyota at last year’s prices, inclusive of VAT”. It is not clear how long the promotion will run and whether it will extend to any other Toyota model launches in the coming weeks.
Arabian Automobiles, the Nissan dealership, is addressing the likely VAT concerns of a new car buyer in other ways. Rather than doing away with the VAT component on a Nissan model purchase, the company is offering “free fuel for a year” plus a year’s insurance and one-year service along with the first registration. And for Infiniti buyers, the dealer will cover 20 per cent of the down payment plus the 5 per cent. (Both offers tie in with Arabian Automobiles’ DSF 2018 promotions.)
“We are definitely addressing its (VAT) implementation through our campaigns, especially at the beginning of the year when the transition from a VAT-free economy is still in progress,” said CEO Michel Ayat.
- Michel Ayat | CEO Arabian Automobiles
The ongoing DSF (Dubai Shopping Festival) promotions do help retailers get creative in their pricing campaigns and, at the same time, allow them to lessen the impact it would have on consumers. The question is how long retailers will go on doing so. With car dealerships, in particular, a slew of new model launches are lined up in the weeks and months ahead.
As such, all automobile related price quotations, invoices and related documentation reflect VAT inclusive pricing in accordance with Federal Tax Authority regulations.
Thankfully, global currency movements are relatively stable, which means that new car shipments from Europe, Japan and Korea suddenly carry a higher showroom price than in 2017. The last thing dealerships want to see would be a currency enforced price rise.
- Osman Abdul Moneim | General Manager at AGMC
As for the VAT component itself, “we do not anticipate any noticeable change in demand once VAT is embedded into the pricing mechanism of the vehicles,” said Osman Abdul Moneim, General Manager at AGMC, the BMW dealership for Dubai and Northern Emirates. “To bridge the introduction, AGMC is offering special campaigns across the entire model range for both BMW and Mini brands, which will go well beyond absorbing the value of VAT.
“Each year provides us with new challenges that we need to tackle appropriately. The current automotive market is focused on tactical offers — we do not expect that to stop in the immediate future.”
For this “transitional period”, AGMC’s current offer pays the first six monthly instalments on behalf of the customer. This will equate to “approximately 5 per cent VAT and three additional monthly instalments,” Abdul Moneim added. “Cash customers will receive the equivalent cash discount.
“VAT will impact primarily private customers as corporate customers are likely to be able to recover the input VAT. We are confident, however, that our model portfolio coupled with our customer-oriented campaigns will allow us to have a positive 2018.”
All of UAE’s dealerships will need be having their own counter offers to the VAT reality. How far they are willing to go with these offers will determine whether they get to close a deal or lose it to another dealership. And whether the 5 per cent VAT component is on a Dh45,000 model or a Dh450,000 luxury marque is immaterial. For the consumer, VAT ultimately matters.
Dealers will have to juggle their margins and VAT campaigns
DUBAI: Dealers can be flexible on their VAT offers to consumers with shipments that reached UAE shores on or before December 31, 2017. But once the newer shipments arrive, the dealers will also have to bear the 5 per cent cost on these. Once these models reach the showrooms, will dealers still be able to absorb part of these costs without hurting their margins?
— M.N.
