Taxation simplification for cars imported to Ukraine

We have a draft law No. 3516 #AtTheCommitteeConsideration, which proposes to change the scheme of value added tax when importing vehicles into the customs territory of Ukraine. The purpose of the draft law, as its author insists in the explanatory note, is to restore fairness in the calculation of taxes on imported cars. The author notes that used cars in Ukraine are 40-70% more expensive than in the EU countries. The reason, according to the initiator of the draft, is the scheme of taxation when importing cars to Ukraine.
 
What taxes do Ukrainians pay today when importing cars?

Today, during the customs clearance of imported cars in Ukraine, the following taxes are paid: excise duty, import duty and value added tax (VAT).

Import duty is 10% of the value of the car.

VAT — 20% in accordance with the current paragraph 188.1 of Article 188 of the Tax Code of Ukraine.

Now VAT on cars imported to Ukraine is charged not from the value of the car itself, but according to the following scheme: car price + amount of duty (10%) + excise duty. 20% of value added tax is deducted from this total amount.

The author of the draft law No. 3270 offers to illustrate this system of taxation in a specific example. For example, in 2019, the most imported cars from the EU to Ukraine were Volkswagen Passat, Volkswagen Golf, Skoda Octavia.

According to the service of the State Customs Service calc.customs.gov.ua, the average cost of Volkswagen Passat cars with 2010year of origin with a diesel engine with a volume of 1968 cc, imported in 2019 was 3597 US dollars (3332 Euros).

The cost of customs duties is calculated as follows:

excise tax - 75 euros (base rate for a diesel engine) x 1,968 (engine capacity in liters) x 9 (age in years) = 1328.4 euros.

Import duty - 333.2 euros (10% of value).

VAT is (3332 + 1328.4 + 333.2) x 0.2 = 998.72 euros

The total cost of customs clearance of such a car today is 2660.32 euros.

In case of the adoption of the draft law No. 3270, the amount of VAT for the same car will be 666.4 euros, instead of 998.72, — the author says. The total cost of customs clearance, therefore, will decrease by 12.5%.

What does the draft law No. 3270 offer?

The document proposes to charge VAT purely on the value of the car.

Which cars are covered by draft law No. 3270?

The draft covers the cars and other motor vehicles intended primarily for the passengers’ transportation, including vans and racing vehicles.

In case of the adoption of the draft law, according to the author, the problem with customs clearance of the cars that are already in Ukraine, but still not cleared through customs, will be solved.

How will this affect the budget?

The Verkhovna Rada Committee on Finance, Taxation and Customs Policy has decided that the adoption of draft law No. 3270 could reduce the state budget revenues from value added tax by approximately UAH 4 billion per year. If the draft law is still approved, it must enter into force no earlier than January 1, 2022 (or January 1 of the following year, depending on the time of adoption of the law).

The Committee on Ukraine's Integration into the EU is considering the draft law No. 3207 on its compliance with the EU law and Ukraine's international obligations under the Association Agreement. The Committee will announce its opinion on the draft at a forthcoming meeting.