/ 31 March 2010

SA’s new tax drive

South Africa’s new carbon emissions tax, which Minister of Finance Pravin Gordhan set out in final form in his budget speech in February, has already attracted much negative comment. This has ranged from the usual criticisms regarding how the money raised will be spent, to more specific concerns about the effect on the automotive industry.

The tax, which is due to come into effect on September 1, is levied at a rate of R75 for each gram per kilometre of carbon dioxide produced over and above a set amount of 120g/km.

The tax is paid only once, on the date of acquisition of a vehicle, and is also only payable in respect of new vehicles. It is therefore, at this stage, not a continuing tax insofar as the first buyer of the car is the one liable for the tax. This will either make second-hand cars relatively cheaper to their new counterparts, or there may be a knock-on effect to the second-hand car market; time will tell.

In real terms, it will be the members of the middle and upper classes who will bear this new tax as these are the people who use cars for their daily commutes, and to whom cars are an important status symbol.

The tax will range from zero to roughly R30 000 per vehicle, depending on the car. For example:

  • buying a Honda civic hatch 1.8 will add R6 075 to your purchase price;
  • buying a Toyota Corolla 1.8 will add a surprising R7 350;
  • buying a BMW M3 coupé R17 025 to your purchase price;
  • a Hummer H3 V8 luxury purchase will add R21 375 to your price;
  • buying a Bentley Continental GT automatic, a whopping R30 825.

A cursory glance through the new car price list of a local motoring magazine that provided the CO2 information used in the calculations above showed that very few new cars will be free from any taxes whatsoever — the benchmark chosen of 120g/km is very low and well below the amount of CO2 produced by most cars available at present.

One criticism of the tax that I have not seen, but which goes to the heart of the problem, is whether it is appropriate for governments to use taxation to encourage or discourage certain practices in society. In this case, so the argument goes, the government wants you to drive more fuel-efficient cars that are less damaging to the environment, and so it encourages you to do so by making you pay more when you drive cars that are more damaging to the environment.

However, whether or not this is a noble environmental initiative by the government, or merely a new money-making scheme, is unresolved — we all know that “Mr Marvin middle-class” (in the words of Kris Kristofferson) is unlikely to make a decision to downgrade his vehicle due to this additional expense: cars are an image-defining factor for many South Africans.

It’s unlikely that anyone, including the legislature, can genuinely believe that the addition of a new tax will deter the car-buying public from buying its beloved BMWs in favour of a Prius?

A second problem relates to the issue of the actual extent of the harm to the environment due to motor vehicles. While many would have us believe that global warming is a done deal, there are sufficient respected naysayers to cast doubts, not only on the extent of the harm done, but whether or not global warming is a man-made reality or a natural cyclical phenomenon.

Is this environmental tax not premature in light of the continuing controversy?

Despite the many reservations expressed about the new tax, its imposition is in line with global trends and it seems that it is here to stay.

As taxpayers, we should prepare to bear an additional burden in future, albeit in the name of a good cause.

Andrew Wellsted is a director in the tax department of Deneys Reitz Attorneys. He writes in his personal cpacity