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20 Aug 2010 16:23
The already struggling motor industry will be dealt a blow on September 1 when the new C0² vehicle emissions tax comes into effect. And the bad news is that the consumer will be absorbing the costs.
In effect, the tax will be charged on all new cars and light commercial vehicles.
Buyers will pay R75 for each g/km of C0² emissions above a threshold of 120g/km, the lowest threshold in the world.
In the case of higher fuel consumption vehicles, the tax and the price effect could be as high as 6%. So the tax burden amounts to about R1,6-billion a year, in respect of new cars. A further R800-million taxes in respect of light commercial vehicles is also anticipated.
To put that in real terms, it will theoretically add:
The tax regime, originally applying to new passenger cars, has been extended to include light commercial vehicles—though minibus taxis are exempt. South Africa is the first and only country in the world to introduce this tax on light commercial vehicles.
The tax is ostensibly being introduced to offset carbon emissions and encourage road-users to buy smaller, more fuel-efficient vehicles.
All well and good, but the knock-on effect may be quite different, as consumers resist buying news cars. And our fuel quality hardly meets international standards, as it is—local low sulphur diesel contains 50 parts per million (0.005% sulphur), but in Europe even 10 parts per million is not considered clean.
Locally produced petrol is also emission-unfriendly, sitting at Euro 3 standard, while modern fuel and emission efficient engines are rated to use Euro 4, 5 or 6 standard petrols, preventing them from being supplied to South Africa.
So how are we achieving a green objective by slapping a one-off tax on motorists?
“This is an ad valorem tax, so it will be part of the price of the car,” says Tony Twine, senior economist at Econometrix. “This will escalate, as you will pay VAT on it, and the ad valorem duty will be applied to the car at factory gate, with a dealer margin added to that.
So the retail price will escalate by more than the tax, while the tax will be invisible to the purchaser, defeating any attempt to sensitise car and LCV buyers to the vehicle’s emission levels.
No data available
Worryingly, there is no data available with regard to the C0² emissions of light commercial vehicles, so it will be hard to explain to buyers just where these figures are coming from. No details as to how this tax has been calculated have been given to car dealers and it is unclear what this tax will be used for.
If it is not being earmarked for green investments, it will simply go straight into the fiscus, propping up tax collection in a falling tax revenue environment.
Gary Ronald, head of public affairs at the Automobile Association (AA), has this to say: “Government has not given an assurance that this tax will be set aside for green investments—it has said ‘where possible’ the money will be allocated in this way, but that is not specific enough. It should be ring-fenced—say, to subsidise filters and scrubbers, or wind-farms, or something consumers will approve of.
“We also feel that this tax is not equitable—why a carbon tax on new vehicles when you could simply introduce cleaner fuels? And what about checking annual tail-pipe emissions? That was supposed to be introduced in terms of the Clean Air Act, but nothing was done.
“The AA has strongly advised that the government introduces an abbreviated safety check alongside testing for carbon emissions on all vehicles to improve the standard of roadworthiness.”
The consumer as fall guy
Roadworx’s motoring expert, Adrian Burford, says: “The consumer is the fall guy as manufacturers must recover costs from dealers, and dealers will have to recover costs from the consumer. You’re looking at a good R15 000 to R16 000 being added to your retail price if you’re buying a car with a seriously big and powerful engine.”
Twine believes that the tax is being introduced now to show that South Africa is compliant with green legislation, making the country an attractive destination for climate-change events.
Clean-up economics makes us credible in the eyes of the international community—as the Kyoto Protocol expires, South Africa will host a conference, probably in Durban, that may reach an international agreement that will replace the Kyoto protocol. That would be a huge diplomatic feather in the South African government’s cap. After all, we held the world summit on sustainable development in 2002.
Burford recommends that the consumer, lacking breathing room, should try to find some creative solutions to the problem. “Maybe you’re a Corolla family and you now have to find a Yaris-sized car,” he says. “If you struggle to accommodate your family and your luggage, you may have to look at, say, a Thule roof-box, to improve carrying capacity. That’s one way around the problem.”
The tax may be a one-off cost, but that cost is substantial, so the consumer may simply be unable to get the necessary financing.
And that will be bad news for the economy, as car sales have been nowhere near as good as they were a few years ago. The impact on employment may be significant, as an added tax burden of about R2,5-billion on consumers will depress sales and affect the vehicle and component manufacturing industries.
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