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How "zero" customs clearance will affect the car market of Ukraine


The law on "zero" customs clearance came into effect in Ukraine. All taxes — excise duty, customs duty and VAT — have been temporarily abolished. At the same time, the mechanism works not only theoretically, but also practically — the first car under the new rules was imported into Ukraine. Experts of the Institute of Car Market Research have determined what they can lead to.

A bit of history

The segment of passenger cars is naturally the largest in the car market, therefore it attracts the greatest interest of buyers. All the reforms that have taken place since 2016 in Ukraine also concerned passenger cars.

The changes of 2018 were significant, when the environmental standard for the import of used passenger cars was lowered to "Euro-2" and the excise tax calculation formula was changed.

These rules unlocked a previously inaccessible segment of the market, which at one time led to the influx of so-called "euro cars", that is, cars registered in other countries, which were used by Ukrainians. The changes made it possible to legally import used cars from abroad and obtain Ukrainian license plates. The automobile business was fully operational.

In total, from 2018 to the beginning of the full-scale invasion of the Russian army, almost one and a half million used passenger cars were imported into Ukraine from abroad. In February 2022, a total of about 11 million cars were registered in Ukraine. The average age of imported cars was about 12 years. In general, the average age of the active part of the Ukrainian fleet was 13.8 years.

After the large-scale hostilities began, more than a million cars were removed from the active part of the market. The solvency of Ukrainians decreased, financial institutions temporarily stopped providing credit and vehicle leasing programs. The number of sales ads halved, activity shifted to the western regions, and imports from abroad almost stopped.

The Verkhovna Rada made a quick and effective decision: it completely canceled all customs payments during martial law. Now, when importing used cars from abroad, customs, excise and VAT are zero. You only need to pay 3-5% of the cost of the car to the pension fund, and pay for the registration certificate and license plates. Experts of the Institute of Car Market Research modeled the possible consequences of this law.

A three-liter diesel engine is no longer a problem

Previously, the formula for calculating the excise tax took into account the type of fuel, the volume of the engine and the age of the vehicle. The larger the volume of the engine and the older the car, the higher the tax. Another third had to be paid for diesel. Therefore, they mainly imported cars with an engine capacity of up to 2 liters and an age of up to 15 years.

"Zero" customs clearance "unlocked" previously inaccessible market segments. There will be more cars with an engine capacity of more than 2 liters. On the one hand, Ukrainians will be somewhat restrained by the increase in fuel prices. On the other hand, diesel cars are becoming less and less popular in the EU countries, so Ukrainians will choose them because of the lower price.

Euroblyakhi, double two?

The absence of age restrictions will no longer limit Ukrainians in their choice. The main thing is that the passenger car corresponds to "Euro-2" or higher. And this car is from 1996.

Since emotion can often win over rationality when choosing a car, the history of the so-called "European cars" may repeat itself, when 15-20-year-old premium brand cars, often in not quite good technical condition, were imported to Ukraine en masse, instead of younger subcompact cars for the same price. Only now will they legally receive Ukrainian license plates.

A better car for the same money

At the beginning of the year, Ukrainians mainly bought cars worth 5-8 thousand dollars — they accounted for almost 60% of the total number of sales. After February 24, the situation almost did not change. Therefore, it is possible to continue to forecast the main demand for cars in the same price range. Itʼs just that now for the same amount, Ukrainians will be able to buy a better car abroad, because sometimes the taxes on cars of this category could amount to more than the cost of the car itself.

Also, "zero" customs clearance will make it possible to replace part of the outdated car fleet with newer and better quality cars from abroad. Basically, these are old Soviet and Russian cars, which are still enough on Ukrainian roads.

Prices will decrease, but not immediately

"Zero" customs clearance will help reduce prices on the market, but by how much will depend on the specific model. For some cars (mainly in the price range up to 5 thousand), the price reduction can be half of the cost. More expensive and newer cars can be cheaper by 20-30%.

For some models, the price may remain unchanged — for example, for those that cannot be brought from abroad, or the purchase, delivery and customs clearance of which will be equal to the already formed price on the market. The price of cars older than 30 years, which are still 5% among the active part of the car market, may collapse to the level of scrap metal. Unless itʼs a retro car, of course.

The main thing that will restrain a massive price reduction is the temporary effect of the law. It will encourage sellers to either postpone the sale or try to sell a "freshly driven" car at the market price. If the law is extended or its conditions are fixed on a permanent basis, the impact on the market will be more significant.

Possibility to upgrade the fleet of trucks and buses

The possibility of importing trucks and buses with "zero" customs clearance remained completely unnoticed. And these are the segments of the car market of Ukraine that havenʼt changed for the better in over 10 years!

The average age of trucks and buses in the domestic market is more than 17 years. The prohibitive coefficients for trucks older than 5 years (x40) and for buses older than 8 years (x50) inhibited the development of their import sector. In 2021, only 3.7 thousand trucks and 1.3 thousand buses were brought from abroad.

Since the new law came into effect, all categories of trucks, except tractor-trailers and buses, have been exempted from customs payments. The only requirement is compliance with an environmental standard not lower than Euro-5. That is, vehicles manufactured no older than 2008 can be registered under "zero" customs clearance.

Such cars will definitely be in demand in Ukraine: there will be a lot of work to rebuild the country. Also, humanitarian aid and goods need to be transported on something — road transport is now almost the main method of delivery.

Time to activate the auto business

Once upon a time, the automotive business in Ukraine was significantly changed by the Covid-19 pandemic. Temporarily limited travel abroad forced to look for a way out. So the business quickly adapted and started using online car buying tools like car auctions. Cars began to be delivered by truck transporters — it turned out that it is easier, faster and more profitable than transporting cars on your own. Thus began the transition of the auto business era from "lone racers" to the European type of business, with a large number of automobile companies offering their turnkey services for buying cars from abroad.

During wartime, travel abroad for men aged 18-60 is temporarily restricted, so buyers should look for the opportunity to bring a car from abroad. This can be done by pensioners, women, parents of many children, foreigners, or logistics transport companies. The demand for such a service will be great.

Tools for remote purchase, delivery, customs clearance and turnkey car registration from abroad will also become more popular. Already today, some companies had to suspend the acceptance of applications for the selection of cars due to the huge number of applications. The temporary effect of the law encourages Ukrainians to hurry.

Also, "zero" customs clearance will make it possible to intensify the work of dealers dealing with used cars. The business got the opportunity to fill them with cars for less money. And therefore, either bring more cars, or offer better options for the same money. A lower price will facilitate a faster sale.

After all, lower taxes mean a more affordable product for the end consumer. Ukrainians who need a car will be able to buy it cheaper or choose a better model for the same money. And along with that — to satisfy the need for mobility, help the family or start earning.

Any business activity, provision of services and every hryvnia spent by consumers in Ukraine contributes to the development of our economy, its strengthening, and therefore helps in the fight against the occupiers. If the state has created all the opportunities and calls for work, it should be used.

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