The car market is under threat. How new government rules lead to falling sales and shadowing of the market
5 November 21:00
ANALYSIS FROM 
The used car market is experiencing a significant disruption. Many dealers have decided to withdraw their cars from sale, which is especially noticeable in the segment of expensive foreign cars worth more than $20,000. What caused this trend, Komersant ukrainskyi analyzed in detail.
Stanislav Buchatsky, Head of the Institute for Automotive Market Research, in an exclusive commentary for
“This change has already led to an almost 20 percent decline,” he said.
Buchatsky believes that if the “dealers” do not find new ways to circumvent taxation, the number of sales may decrease further. He emphasized that these changes are temporary, and eventually the market will return to previous volumes as market participants adapt to the new conditions.
What the Ministry of Finance of Ukraine says
In an exclusive comment for
The new rules do not provide for changes in tax rates, but only clarify the mechanism for determining the tax base: now the price of a car must correspond to the appraisal or the average market price, which will ensure fair taxation.
“However, it is difficult to calculate the exact impact on the budget, as the car market is dynamic and the number of transactions may vary. At the same time, it is expected that the innovations will contribute to a more transparent formation of the tax base and a greater compliance of transactions with market conditions,” the Ministry said.
Massive drop in used car sales: what will dealers do?
The main reason for the decline in sales, the expert says, is the aforementioned resolution of the Cabinet of Ministers, which changed the procedure for domestic resales of cars.
“This resolution requires sellers to indicate the market value of the car, which can be determined through an official resource or by a special expert,” explains Buchatsky.
Previously, sellers could fix symbolic amounts to avoid paying taxes.
Today, the tax for the first sale of a car is 0%, for the second – 5% of the market value, and for the third sale – 18%. Together with the military fee, which can reach 5%, the total tax rate can exceed 20%.
“For a car worth $10,000, this means tax costs of more than $2,000,” Buchatsky said.
The expert believes that the new tax requirements may lead to the shadowing of the market, as people will look for ways to avoid paying taxes, for example, by donating cars or re-registering them to relatives.
“It doesn’t make any economic sense, but on the other hand, these dealers, they also didn’t show all these operations, in fact, business, as trading activities, they did it as individuals, which is not at all how it should be according to the law. The state would like to bring all these resales into the legal sphere in this way and get some taxes. On the other hand, I am sure that it will not bring the budget revenues that the state plans to generate, because it does not work linearly,” the expert said.
He also emphasized that Ukraine needs to simplify the rules for trading in used cars, because in Europe, car trading is legalized, and companies pay taxes on profits, not on the cost of the car. This would be a more logical approach.
Schemes for resellers: they will take up the “old”
As you can see, recent changes in tax legislation create new challenges for car owners who are already trying to find ways to get around the innovations. This is not a new phenomenon – we have seen similar situations in Ukraine 10-15 years ago, and unfortunately, we are now returning to the old schemes.
One of the most common methods of tax avoidance is selling under a technical passport. In this case, money is actually exchanged for documents, and the car itself remains in the ownership of the previous owner. This is not only risky, as there is a risk of the car being seized, but also legally incorrect, as the ownership is not transferred to the new owner.
“We are also seeing a return to previously popular schemes, such as the issuance of a power of attorney. This allows you to formally leave the car with the previous owner, but in fact, the new user gets the opportunity to re-register only in the next calendar year. Although this scheme may seem beneficial, it also carries certain risks, as the ownership remains with the previous owner,” says Buchatsky.
Also, some car owners may consider donating a car, as this process does not require an appraisal and is not considered a sale, which allows them to avoid tax liabilities. However, even in this case, it is important to understand that all these schemes carry risks that can lead to financial losses.
Is the era of commission-based parking lots and car dealerships over?
When asked about the impact of the new rules on car dealerships and car marketplaces, Buchatsky said that these businesses will probably be able to adapt to the new conditions, as car dealerships will not give up selling used cars, as this is their main source of income. This will most likely affect small automotive businesses that did not have processes in place.
After all, many car lots, they sell freshly imported cars, (10:54) and I have already said that these restrictions do not apply to them. (10:59) That is, a company that brings cars from abroad, they can bring even a thousand of them a month, (11:05) and they will pay tax on the profit, not on the cost of the car.
“That’s why they can bring in an unlimited number of cars from abroad, and in principle, it’s okay. Most of all, this problem concerns those who sold cars and registered them for individuals. Again, if it’s a car marketplace that sells cars without re-registering them to itself, and, for example, the previous person remains the owner, and this is the first sale for this previous person in a year, then, in principle, nothing will change for them,” the expert emphasizes.
Transformation of the automotive market: what are the benefits for buyers?
In conclusion, the expert emphasized that the transition to a more civilized car market is a gradual process.
“We are witnessing a transformation of the market, when dealers are gradually withdrawing, and more legal structures are taking their place,” Buchatsky summarized.
“Those who are really engaged in business should probably think about having some kind of legal legitimacy for this activity, because, firstly, it is normal to have a formalized business. Secondly, for buyers, there is a certain element of confidence, because you bought a car today from an unknown individual and gave him money, and tomorrow you won’t find him. Unless there is something wrong with it. Instead, if you have a legal entity, you can sign a contract with it,” emphasizes Stanislav Buchatsky.
So if a company really has an established brand, history, and physical location, the likelihood of its sudden closure or ignoring customers is much lower. This creates conditions for competition, where reputation, customer feedback, and quality of service become key factors.
Such aspects have long been proven in European countries, but in Ukraine they have not yet become the basis for market formation, the expert says. Customers are increasingly beginning to realize the importance of service and feedback, which is gradually pushing car rental companies to improve their services. In an increasingly competitive environment, reputation is becoming a major asset for companies seeking to maintain their market position. And the gradual transformation of the market towards legal structures will increase customer confidence and the quality of service in the automotive business.
Author – Daryna Glushchenko
