Andrew Kirby
The substantial increase in ad valorem vehicle excise duty rates announced in the National Budget this week – with the maximum duty for motor vehicles rising from 25% to 30% – together with the increases in value added tax (VAT), emissions taxes and the fuel levy, “will compromise vehicle affordability in South Africa and will probably have a significant impact on the size of the domestic market”, says National Association of Automobile Manufacturers of South Africa (Naamsa) president Andrew Kirby.
The premium car segments of the market will be worst affected, he notes.
Already, vehicle affordability is increasingly under pressure as a result of a rising tax burden, says Kirby. The upfront fiscal contribution by consumers when buying a new vehicle, in the case of an entry-level vehicle, will now be about 19% and, in the case of a premium product, as much as 45% of the purchase price.
“Naamsa is most disappointed at the disproportionate negative impact of various tax proposals on the automotive industry,” comments Kirby. “The vehicle tax increases are detrimental to the future growth of the industry. Naamsa has for many years requested authorities to review the taxation regime applicable to new motor vehicles in South Africa. This will now be pursued with renewed vigour.
“Naamsa would have preferred to have seen more emphasis on a reduction in the size of government involving rationalisation of government departments and the Cabinet, as well as cuts in government expenditure.”
Another disappointment is the planned increase of around 7% in vehicle emissions taxes, adds Kirby.
“In the absence of clean fuels, based on international specifications, the automotive industry objects to further tax increases.
“The availability of clean fuels is essential to enable the industry to offer customers high technology, highly fuel efficient and low emission new motor vehicles in South Africa and is also
essential to reduce the emission of hazardous gasses harmful to human health and the environment.”
There is currently no implementation date on the table for the government-enforced introduction of cleaner fuels in South Africa.
Naacam Agrees
National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Renai Moothilal regards the National Budget as one “looking to stop the bleeding caused by spiralling government debt levels”.
“It is vital that the projection of a drop in the budget deficit from 4.3% in 2017/18 to 3.6% in 2018/19 does materialise.”
However, Moothilal concurs with Naamsa that the increased rates of taxation, while needed in the budgeting process, are “an obvious concern”.
“VAT has increased after many years in South Africa, and its impact will be felt by consumers.
“Similarly, the increase in ad-valorem taxes will negatively impact the domestic vehicle sales outlook, which does not assist South Africa’s case for higher levels of vehicle production.”
Moothilal says it “may be an interesting scenario for policy makers to look at using rebates on such a tax increase to stimulate demand for domestically produced vehicles. This would be a growth enhancing measure that local component manufacturers could benefit from”.
Moothilal adds that Naamcam is “cautious” about the impact of the still to be finalised Carbon Tax Bill, which Finance Minister Malusi Gigaba stated will be implemented from January 1, 2019.
“Our commitments to a cleaner environment are vital, but industrial development should not be impacted by an overzealous regulatory regime.”
It would have been ideal if allocations for greater industrialisation incentives were announced, but Moothilal notes that measures such as Gigaba’s approval of six special economic zones for tax relief, as well as a streamlining of the research and development tax allowance, will aid industrialisation in South Africa.
“All things considered, the budget for 2018 is not surprising, and Naacam now looks forward to the finalisation of a localisation strengthening Automotive Masterplan this year.
“It is expected that the incentive and policy certainty this will bring to the sector should be used as the basis for long-term automotive manufacturing investment and production plans.”
The masterplan is to replace government’s current auto industry support programme, the Automotive Production and Development Programme, in 2021.