NAAMSA MEDIA RELEASE
COMMENT ON THE IMPENDING CO2 VEHICLE EMISSIONS TAX REGIME EFFECTIVE 1ST SEPTEMBER, 2010 AND REACTION TO NATIONAL TREASURY PRESS RELEASE REGARDING AN EXTENSION TO THE SCOPE OF APPLICATION OF EMISSIONS TAXATION TO INCLUDE LIGHT COMMERCIAL VEHICLES
Reacting to an announcement by National Treasury that the CO2 new vehicle tax regime, originally intended to apply to new passenger cars, would with effect from 1st September, 2010 be extended to include light commercial vehicles – Mr David Powels, President of the National Association of Automobile Manufacturers of South Africa (NAAMSA) said that the decision was alarming and would result in negative and potentially serious consequences for the South African vehicle manufacturing, importing and distribution sectors as well as associated industries.
Since August, 2009, NAAMSA representatives had been involved in deliberations, meetings and an exchange of communications with National Treasury on matters regarding the introduction of CO2 emissions taxation. The said engagements had been based on a clear understanding and agreement that a specific CO2 tax regime would initially apply to sales of new cars in South Africa and that the extension of CO2 taxes to new light commercial vehicles would follow developments in the European Union where CO2 taxes on light commercial vehicles was planned from 2014. In essence, at this very late stage, Treasury had reneged on the agreement.
The decision by Treasury was apparently based on the perception that double cab light commercial vehicles were often used as passenger vehicles, however, this was not the case in respect of single cab light commercial vehicles and bakkies. The latter represented productive assets of a capital nature and were used extensively by small and medium enterprise in the course of business operations. NAAMSA would be prepared to engage in discussions on the extension of the CO2 taxation regime to double cab vehicles. However, the Treasury’s announcement failed the test of predictability and certainty for manufacturers and buyers since, at this stage, there was no clarity or information available to the industry regarding the basis of determination of CO2 values for purposes of calculating the CO2 tax on light commercial vehicles. Consequently, manufacturers/importers were unable to plan properly or price their respective products. Clearly, Treasury had failed to understand the importance for the industry of appropriate lead times required for product and strategic planning decisions.
A further matter of great concern was the impact of the additional taxes on buyers of new cars and new light commercial vehicles. The additional cost to consumers would, on average, be of the order of about 2,5%. Based on current sales volumes, the incremental tax burden amounted to about R1,6 billion per annum in respect of new cars and would probably add a further R800 million additional taxes in respect of light commercial vehicles. There was no doubt that an increase in the tax burden of around R2,5 billion would depress sales volumes and production and will have negative implications for employment levels in the vehicle and component manufacturing industries.
Moreover, in respect of light commercial vehicles there was at present no internationally applied test method and procedure for the determination of CO2 emissions levels. In Europe, emissions taxation on light commercial vehicles was planned only from 2014 onwards. South Africa – without the availability of the required enabling fuel – would therefore be the first and only country in the world to introduce CO2 emissions taxes in respect of light commercial vehicles. Furthermore, it was not possible to determine with any accuracy CO2 emissions levels using engine capacity as a proxy, contrary to the suggestion by Treasury.
NAAMSA would request an urgent meeting with the Minister of Finance to address the afore-referenced issues as well as the concern within the automotive industry of the growing misalignment between industrial policy and ad hoc fiscal policy actions. The revised Industrial Policy Action Plan sought to promote long term industrialisation and the growth of domestic sales and production and employment. The CO2 tax regime would undoubtedly have a negative effect on the industry and would do nothing to promote the achievement of South Africa’s industrial policy objectives. Moreover, NAAMSA would advocate the need for an analysis of the socio-economic impact of the planned CO2 emissions tax regime and the quantification of the impact of these taxes on sales volumes and on the structure of the new car and used car markets in South Africa as well as on inflation and employment.
General Comment on CO2 Vehicle Taxation and Related Issues
In line with international developments, NAAMSA accepts the principle of environmental taxes to improve air quality and safeguard the environment in South Africa. The purported purpose of the CO2 new car tax regime is intended to send a strong signal to consumers, producers and importers of new vehicles in South Africa specifically to influence consumer behaviour in favour of more fuel efficient, less carbon emitting vehicles and, in the process, to improve ambient air quality in the country.
Unfortunately, the planned CO2 tax regime as currently structured will fail to achieve the intended objective. In order to be effective in influencing consumer purchasing decisions, NAAMSA argued strongly that the tax should be applied at point of sale to ensure visibility to the end customer. However, the tax authorities indicated that the tax will have to be applied at point of production, in respect of locally manufactured vehicles, and point of importation in respect of imported products. The tax will therefore become part of the selling price of the vehicle and will not meet the test of transparency for end customers, thus defeating the intended objective.
The application of the CO2 tax regime is also inequitable in that it discriminates against buyers of new motor vehicles. If Government was really serious about penalising emissions (a proxy for fuel consumption) the authorities should introduce an environmental levy on all fuels, petrol and diesel. This is the only fair and equitable way of ensuring that all vehicles are covered by the tax regime and contribute in direct proportion to usage/fuel consumption/vehicle emissions. The recent OECD report also recommended this as a better option than taxing only new vehicles.
The tax authorities in South Africa appear to favour the principle of tax penalties as opposed to tax incentives. Fleet renewal incentive schemes through tax rebates and tax deductions for the purchase of highly efficient vehicles has proved to be highly successful in many countries in rejuvenating the vehicle parc and substantially reducing overall road transport emissions. These fleet renewal schemes substantially increased sales of more energy efficient vehicles and benefited consumers, auto workers and the environment. Additionally, the fiscus would benefit since every new vehicle sold generates incremental revenue through usage. Unfortunately, in South Africa, our tax authorities have opted for the penalty as opposed to the incentive option. It would be far better to opt for a win-win situation.
Probably the most glaring shortcoming arises from the fact that South Africa does not have the benefit of Euro IV/Euro V enabling fuel which continues to constrain automotive companies in offering highly fuel efficient vehicles to the domestic market. Nowhere in the world has any country introduced a CO2 tax regime without the availability of the enabling fuel. NAAMSA continues to advocate that government should legislate and incentivise the introduction of Euro IV enabling “green” fuel in South Africa. This would provide quantum leap benefits in the reduction of CO2 emissions of new cars sold. Specifically, correct fuel quality could reduce new car emissions by up to 20%. Moreover, improved quality fuel contains fewer harmful pollutants, notably benzene and sulphur, which would contribute to improved air quality regardless of the age or type of the vehicle.
In the final analysis, the introduction of CO2 new vehicle taxes and the introduction of Euro IV/Euro V enabling fuel in South Africa should go hand in hand. This was in fact the outcome contained in the Presidential NEDLAC Framework Agreement between government (Department of Trade & Industry), business and trade unions regarding linking the introduction of CO2 taxes to a timetable/roadmap for the introduction of the required enabling fuels in South Africa. The matter was arbitrarily ignored by National Treasury.
The introduction of the CO2 taxes will have inflationary implications and increase the price of new vehicles, on average, by about 2,5%. In the case of higher fuel consumption vehicles, the tax and possibly therefore the price effect could be as high as 6%. This will have negative implications for automotive companies, their business operations and their employees and could affect South Africa’s fragile economic recovery. Moreover, given the weighting of motor vehicles in South Africa’s consumer price index of 11,25%, the inflationary aspects of this form of ad-hoc taxation will have monetary policy implications. All other things being equal, higher new vehicle inflation will translate into reduced scope for monetary policy easing and this in turn raises macro-economic policy management questions.
In the interests of the country, the South African automotive industry, auto workers and vehicle buyers, NAAMSA Chief Executives will seek a joint meeting with the Ministers of Finance and of Trade & Industry to address remaining policy differences and to consider the need for a more logical and effective integrated approach to reducing vehicle emissions in South Africa. Ultimately, government and the industry must be part of a collaborative, constructive dialogue that shares knowledge and best practices on CO2 emissions reduction initiatives.
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