A showdown between lobbyists for low excise taxes on used cars and their opponents will allow Ukrainians to upgrade their cars at a fraction of the cost.
The nearly year-long standoff between supporters and opponents of increasing imports of cheap cars from Europe ended in victory for the former. On May 31, parliament adopted Bill No. 3251 in its second reading and as a whole, providing for a significant reduction in the excise tax on used foreign cars until the end of 2018. The corresponding amendments will be made to the transitional provisions of the Tax Code and will come into force one month after the document's official publication—naturally, after it is signed by the president.
I got lucky by chance
The Verkhovna Rada's decision will change not only excise tax rates but also the principle by which they are calculated. Until recently, there were three tariff schedules: for new cars (0,1–2,2 euros/cc depending on engine displacement), cars up to five years old (1–3,3 euros/cc), and cars older than five years (1,4–4,9 euros/cc). Meanwhile, models with powerful engines and significant age were essentially "no-go": customs officials charged record amounts of several thousand (or even tens of thousands) euros for their import, often exceeding their market value.
Now excise taxes for new and used cars manufactured from 2010 onwards are equalized and will be 0,1 euro per cc for cars with engines up to 1 liter, 0,063 euro for models with engines up to 1,5 liters, 0,267 euro for up to 3 liters, and 2,2 euro for engines of 3 liters and more.
"That is, if previously a compact car required an excise tax of €1,4, now it's only €100. For cars with gasoline engines up to 2,2 liters, the savings are even more significant: the excise tax will be €534 versus €4,9," calculated Oleg Omelnitsky, head of the consulting firm Autoconsulting.
True, a 10% import duty and 20% VAT still remain. But even taking these into account, a used car from Europe will be a good deal. The explanatory note to the bill estimates that by the end of this year, Ukrainians will import at least 20 used cars.
It's worth noting that our citizens have perhaps the most implacable opponent of the global auto industry to thank for the opportunity to upgrade their cars: Tariel Vasadze, Honorary President of the UkrAvto Corporation (which controls the Zaporizhzhia Automobile Plant). He is considered the main lobbyist for Bill No. 3251.
Tariel Shakrovich, who had previously harshly criticized the opening of our market to "junk cars" from Europe, has a simple explanation for this abrupt change in his views. A sharp decline in production at ZAZ (it has produced less than a dozen vehicles since the beginning of this year), as well as a collapse in sales of new foreign cars (Ukravto includes several dealerships selling Mercedes, Kia, Jeep, and Nissan, among others), forced Vasadze to seek ways to diversify his business. In the current economic climate, the best way to attract buyers is by selling cheap used cars. Ukravto has even created a separate division, AvtoHit, within its Universal Motors Group, specializing in used vehicles. Its first locations have already opened in Kyiv—on Stolichne Highway and Okruzhnaya. The corporation has stated that it intends to sell both cars donated by Ukrainians and used foreign cars from Europe.
DS sources say other major importers of new cars were also eyeing the used foreign car business. However, companies with no intention of disrupting the market have succeeded in introducing provisions into the bill that make it impossible, or nearly impossible, to import used cars en masse into our country. First, it stipulates that only one car per year can be registered to a legal entity or individual at the preferential rates. And if that same individual is caught trying to resell the vehicle within a year, they will be forced to pay additional taxes at the old rates.
Secondly, the law contains a clause excluding cars from "aggressor countries," meaning Russia, from the "preferential" list. "The lobbyists were primarily targeting the Russian market, where cars are significantly—almost half—cheaper than ours. In Europe, the difference isn't as significant—30-35%. Taking into account import duties and VAT, the profits from wholesale deliveries would be negligible," explains Nazarenko.
Hand with money and car keys on a white background
What will happen to prices
The extent of Ukrainian car tourism and its impact on the prices of existing cars (which many will likely want to sell to buy a European car) and new foreign cars remains unknown. According to Autoconsulting, the excise tax bill slowed dealership sales even before its adoption. In May, only 4,400 new cars were sold in Ukraine, a 20% decrease compared to April. Of course, the extended May holidays played a role, but so did the wait-and-see attitude of potential buyers, who decided to hold off on upgrading their cars until the excise tax reduction and now can buy a two- or three-year-old European car of a higher class for the same price. This trend will only continue to grow, and in some regions, particularly in the West, the new market risks dying out altogether, Omelnitsky believes.
The scale of used car shipments to Ukraine can only be guessed at. Nazarenko believes that enterprising residents of western regions, who have long since stopped buying cars in Ukraine themselves, will set up car lots on the Polish-Ukrainian border and take potential customers there for viewings. "They'll register the cars directly in the new owner's name, thus circumventing the ban on importing more than one car per year. I think these lots will have well-placed customs officials, and their own companies will help lower the customs value of the cars and process the paperwork," Nazarenko believes. It's clear that intermediaries will add their commission (at least 0,5-1 euros) to the price of the car. Ukrainians will also be able to travel to Germany to buy a car themselves. But considering the overhead costs of travel, the result will be almost the same.
But even so, cars from Europe will be 2,5 to 6 euros cheaper than similar ones in our markets. Not to mention that their technical condition and features are incomparable to those used in our conditions. "Foreign cars from Europe will drive down prices on our used car market. All cars manufactured before 2000 will become at least 2 euros cheaper," the expert predicted.
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