The South African consumer, already battered by high interest rates and poor market conditions, could soon receive a few more bruises. And the shade of this new set will be a violent green.
The proposal in the budget to incorporate an environmental element to motor vehicle ad valorem excise duties by 2010 could see the retail prices of passenger vehicles rise 7%, says business advisory firm Deloitte.
At present the ad valorem tax is a luxury tax on vehicles, designed to protect local manufacturers from foreign imports. But come 2010 this aspect of the tax will be reduced and an environmental levy included, taxing vehicles for the number of grams of CO2 emitted per kilometre.
For vehicles imported into South Africa the price could rise, on average, as much as 7%, and the retail selling price on motor vehicles manufactured in South Africa could rise as much as 3%.
Although this may sound minimal, the price of a Fiat Pallio II Vibe that produces 242CO2g/km, retailing at R100 800, will cost an additional R7 490, according to Deloitte. This is a 265% increase on its current ad valorem duty.
This is bad news for consumers, who already pay about 15% more for vehicles in South Africa. ”The vehicles’ sales prices will see an above inflation increase on introduction in March 2010,” says Annelise Warrington, senior manager at Deloitte.
”The motor industry is already under severe financial pressure, so it could be recommended that these tax increases may be postponed until the industry is healthier.”
The tax, however, is in line with government’s attempts to bring South Africa up to green speed. ”Policy measures to address the environmental and social costs associated with the transport sector, such as reforms to vehicle and fuel taxation, seek to promote fuel efficiency, limit the rapid growth of the number of vehicles on the roads and encourage the use of public transport,” said treasury in its budget review.
The tax is capped at 12% on vehicles that emit 300CO2g/km or more.
”This defeats the environmental fight in that SUVs and 4x4s, which emit the greatest amount of CO2, are not penalised aggressively for emitting an average 380CO2g/km,” says Warrington.
Treasury spokesperson Thoraya Pandy says the cap is a proposal informed by the available data.
”If there is a case to increase the 12% cap, it can be considered during the consultation process.”
Nevertheless, an imported Range Rover Sport, emitting 417CO2g/km, and selling for R765 000, still sees a price hike of R52 822.
But there is good news as the ad valorem does benefit fuel-efficient cars. The ad valorem on Toyota’s Prius, a hybrid car that produces 12CO2g/km drops from R24 855 to R16 658, or 33%. The retail price drops by R8 197 to R282 803. The Audi A3 TDi, which produces 155CO2g/km, sees a drop in price from R232 000 to R231 285.
Warrington says that in other countries such as the United Kingdom the emissions tax is collected at the time of relicensing a vehicle each year. Eventually it becomes uneconomical to renew the licences, he says, and the car is scrapped. ”Obviously in South Africa this would hurt the poor the most and would have to be carefully considered,” says Warrington.
The tax also has no effect on commercial vehicles.
Warrington says commercial vehicles, especially older ones, give off the highest carbon emissions, yet they are not forced off the road or encouraged to become more environmentally friendly. ”In addition, no thought has been given to commercial vehicles greater than 3,5-tons,” she says. ”One would think that government would start with the biggest gas guzzlers and environmental pollutants.”
But, says Pandy, this too will be considered at a later stage. ”Again the consultation process might help to inform a proposal for next year’s budget.”
With the market in the trouble that it is, Warrington foresees that individuals will hold on to their vehicles for longer than the three-year market target. But as vehicles age, so to do their emission control components. ”By creating penalties on new cars as opposed to older vehicles, we are not encouraging motor vehicle drivers to become more green conscious,” says Warrington.
But Peet du Plooy, trade and investment programme adviser at the WWF, says that in principle the tax is a good start. The ”wealth aspect” of the tax is reduced and the incentive is created for buyers to purchase greener vehicles.
Targeting carbon emissions at the point of purchase is effective, he says, as it commits the buyer to a lifestyle choice. ”But we won’t know whether the incentive is enough until we see the response on the demand side,” he says.
Du Plooy says targeting used vehicles is at present administratively too difficult. ”This will not be practical,” echoed Pandy.
