A new law passed by parliament on May 31 that cuts excise tax on imported used vehicles could bring the ailing auto manufacturing in Ukraine to a dead stop, national car makers have warned.
The law, which is intended to stimulate the used vehicle market, slashes
excise tax on imported second-hand car by 28 times. The bill still has to be
signed by the parliament speaker and the president.
The law grants each Ukrainian citizen the right to import only one
used car per year at the reduced excise rate. If the car is sold within a year
of its import, the full excise tax will have to be paid. Only cars made after
January 2010 can be imported, and they can be imported from any country apart
from Russia and the Russian-occupied Ukrainian territory of Crimea. The law
will be in effect only until December 2018.
Most of the cars imported to Ukraine come from Western Europe,
where car-owners keep their cars for 6.2 years on average before trading them
in due to rising tax, insurance and servicing costs, according to European
Commission data.
Meanwhile, in Ukraine, a car remains a luxury. Only 202 Ukrainians
out of 1,000 have a car, while in Europe it is 487. However, high import excise
taxes have made used cars from Europe and other countries uncompetitive in
Ukraine.
The government opposed the law. The finance and economy ministries
argued that all countries limit imports of used vehicles in order to protect
their environments and national producers.
According to the Finance Ministry, the state budget will lose at
least Hr 1 billion ($40 million) in taxes if the excise tax on used cars is
cut. Critics also say older and less environmentally friendly vehicles might
flood the country, turning Ukraine into the world’s car dump due to high
corruption at Ukrainian customs.
But proponents of affordable second-hand autos argue that six- to
seven-year-old European vehicles would not harm the environment in Ukraine,
where the car fleet is one of the oldest in the world. The average vehicle age
in Ukraine is 19.6 years, according to the data from analytical group
AUTO-Consulting.
The author of the bill, lawmaker Robert Horvat from the Bloc of Petro Poroshenko faction in parliament, expects that domestic dealers will have to reduce prices for new cars by nearly 20 percent to compete with used vehicles.
“The whole car market will drop,” he told the Kyiv Post. “(Cars) have to become more affordable for every family.”
According to Yukhym Khazan, the vice president of Ukrautoprom, the
Ukrainian Motor Vehicle Manufacturers Association, sales of new cars in Ukraine
will drop significantly if the law takes effect. The law will bring Ukrainian
carmakers, who target buyers of budget-class vehicles, to a screeching halt, he
said, adding that around 8,000 car industry workers could lose their jobs.
“The lawmakers are thinking about the people who can afford to buy
a car,” Khazan said. “But they’ve completely forgotten about those whom they’re
going to send back to the labor market to look for a job.”
Kyiv Post staff writer Olena Savchuk can be reached at
[email protected]
