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Zero customs clearance was canceled. How will it affect the car market?


Zero customs clearance was canceled. The Verkhovna Rada by a majority of votes adopted draft law No. 7418. The document restores the "pre-war" customs clearance rates, which were adopted by the previous government back in 2018. If the law is signed by the President, as of July 1, customs duty, VAT and excise duty, depending on age, will be returned to the import of cars. How it will affect the market, experts of the Institute of Car Market Research have investigated.

From extremes to extremes

The history of the cancellation of "zero" customs clearance began almost immediately after the adoption of such rules at the beginning of April. Each of the arguments used to justify the desire to return to the old system of customs clearance was refuted.

  1. Queues at the borders in April were formed not because of "zero" customs clearance, but because of a global change in transport flows: the western border remained the only "gateway" for the import of goods into Ukraine. Later, the flow of cars decreased and the issue of queues no longer arose.
  2. Contrary to statements about the mass import of luxury cars, the absolute majority of cars imported under "zero customs clearance" were worth $2-5 thousand. There were less than 50 cars worth more than $100,000.
  3. The last argument: the budget allegedly lost 13 billion hryvnias. However, without "zero" customs clearance, no one would have brought so many cars with the appropriate characteristics. Therefore, losses cannot be determined in a linear fashion, but other aspects to which duty-free imports have led must be taken into account: the activation of the economy, the increase in population mobility, the development of related business areas, and the absence of corruption during importation.

However, such arguments did not influence the decision of the deputies. If the law is signed by the President, "zero" customs clearance will cease to apply as of July 1, 2022. The Institute of Auto Market Research considers such a decision to be a movement from extremes to extremes.

The complete cancellation of taxes, then the constant uncertainty about their validity period, several attempts to return them, declarations about customs clearance in a smartphone and finally just returning to the rates of 2018 — all this has a very negative effect on the car market and deprives both citizens and businesses of the opportunity to plan.

Next week, we should expect an increase in the queues at the borders, because now the number of those who want to take advantage of the duty-free import of cars before its cancellation will increase sharply.

How will it affect the car market

In March 2022, only about 2,000 used cars were imported into Ukraine. With the adoption of "zero" customs clearance, imports have increased many times.

Dynamics of import of used vehicles during April 2021 — May 2022

Experts of the Institute of Car Market Research predict that with the return of "pre-war" customs clearance rates, imports will stop again, to the level of several thousand cars per month. This will be facilitated, in particular:

  • decrease in the purchasing power of Ukrainians as a result of a full-scale war;
  • the increase in the price of cars abroad due to the crisis in the automotive industry and the shortage of supply on the market;
  • increase in price and difficulty of delivery of vehicles from abroad, most of all in the segment of cars from the countries of America and South Korea;
  • exchange rate changes, devaluation of the hryvnia.

After the tax return of the 2018 model, importing a car from abroad will be unprofitable. Therefore, for the first time, cars will be bought on the domestic market, where prices for most popular models will begin to rise, within the range of 20-30%.

In addition to the direct impact, there is also an indirect one: a sharp increase in corruption risks at customs. Since the formula for charging taxes depends on the customs value of the car, which in turn is determined by customs officials, it can be assumed that schemes to reduce the size of these payments will be restored. In particular,falsification of invoices, indication of fictitious car damage, replacement of documents, etc.

The cancellation of the tax to the pension fund for electric cars, provided for by draft law No. 7418, will not improve the situation in the car market in any way. First of all, due to the very small percentage of cars with an electric motor in the structure of imports due to the high cost of such cars abroad, it will apply to a limited number of well-off Ukrainians.

Taking into account all the negative points described above, it is possible to predict not additional revenues, but on the contrary losses of the Ukrainian economy due to a decrease in the volume of imports, an increase in the level of corruption, and a decrease in the economic activity and mobility of Ukrainians.

What could be the compromise

A balanced solution can be a compromise option of partial restoration of import taxation, according to the Institute of Car Market Research. For example, the abolition of the excise tax on all types of vehicles, not just cars, with the return of only VAT and customs duties. And later — approval of the promised car customs clearance with the help of "Action".

The abolition of excise duty, payment of only VAT and customs duties now, and a smooth transition to the new conditions of customs clearance "on the phone" would be positively received by both lawmakers and society. Also, with such a decision, it would be possible to achieve a balance: the state would steadily receive revenue from the import of cars without corruption; citizens would receive a convenient and effective tool for self-registration of cars without intermediaries; business would get predictability and the opportunity to work transparently, competing with service, speed and quality, and not with the ability to better use "schemes".

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