Used Vehicles (Trade-in) Working Group

Coordinator

• Olga Bukova - olga.bukova@aebrus.ru

Working Group Objectives

Action Plan

• The efforts of the AMC Used Vehicles WG are concentrated on the development of a transparent used vehicle (UV) sector in Russia. In spite of the fast developing market, UV trade in Russia is under-developed and is still considered “grey”, since the majority of the transactions are performed by private individuals not official dealers and are almost tax free. When trading-in vehicles, consumers do not enjoy the benefit of having the support of an official dealer network (where the cost of the used vehicles is credited for the purchase of a new vehicle)
• The main hindrance in the development of this market is legislative. Under the Tax Code, VAT is levied on all deals between legal entities and consequently UVs are subject to VAT on the full vehicle price. A legal entity (official dealer) is required to pay VAT on the sale of a car with mileage during trade-in, while this is not the case in transactions between private individuals. This leads to duplicate collection of VAT at vehicle resale by the dealer (VAT is first collected when the new vehicle is bought from the dealer, then again when the vehicle is resold) and artificially increases the UV price for the buyer
• As a result, authorised dealers seldom trade-in vehicles from customers who have bought a new vehicle from them. Consequently, customers tend to buy used vehicles on commission from other private individuals and this pushes used-vehicle trade into the “shadow economy”. In this scenario, consumer protection is minimal: no warranty is given to the buyer; retail finance cannot be obtained

• The WG’s main objectives are to develop a transparent used vehicle sector in Russia, creating proper market for used vehicles and trade-inns; to bring regulations in line with EU practice by getting rid of double taxation in UV trade; so that legal entities are allowed to sell UVs without being eligible for VAT, in accordance with European practice (Directive 94/5/EC)
• The WG has prepared a proposal based on a comprehensive study of European tax and trade-in practices with a financial estimate included. The initiative is supported by the Association of Russian Automakers (OAR) and the Russian Automobile Dealer Association (ROAD)
• The suggested amendments to the Tax Code would result in a more transparent and legal market for used vehicles and trade-ins. Consumers would gain a clearer and simplified system of trade-in and retail finance options and higher consumer protection due to vehicle safety checks carried out by dealers. Automotive companies would benefit from an increased demand for new vehicles and increased sales growth boosted by the trade-in option and higher levels of customer satisfaction. Benefits for the state would include: a transparent and legal UV trade sector; faster turnover of used vehicles; increased tax revenues to the state budget from the sale of new automobiles and funds emerging from trade operations with legal entities; creation of new jobs in the automotive retail and maintenance sectors and a decrease in road traffic accidents due to official dealer involvement in technical inspection and pre-sale services