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The COVID-19 pandemic has changed the business and industrial landscapes forever, both here in South Africa, and globally. One of the industries that has had to adapt or die quickly is the automotive industry in all its facets. This has meant rethinking the way it does business and what stimulus packages are required to get it firing on all cylinders again, as the SA new vehicle market collapsed in 2020 to a level 29.1% below the 2019 sales volume.

Local motor manufacturers and importers certainly rallied to the flag with active and meaningful support for fighting the virus, right from the early days of lockdowns in March, and subsequently they have continued to be supportive of their retail dealer networks.

Most members of the National Automobile Dealers’ Association (NADA) have been able to manage their businesses through this crippling pandemic which has, in some cases, involved making tough decisions such as right-sizing, retrenching staff and even considering options to relocate or consolidate premises.

However, commentators and analysts agree that only a significant, financial stimulus package from government will allow the industry to accelerate its recovery processes. The most effective way to increase sales will be to make new vehicles more affordable by reducing the huge portion of the purchase price that goes to the government fiscus in various forms of taxation.

This is, in fact, only a part of the massive taxation burden that motorists and transport operators must bear, with highly taxed fuel being an ever-increasing cost. Then there are annual licence fees and the controversial toll fees – besides a tyre levy averaging about R150 per tyre – which does not go to recycling as was intended but goes straight to the fiscus. There was even mention last year – later denied – of motorists contributing to the Gautrain project which continues to run at a loss.

Tax on the purchase price of a vehicle costing R450 000 runs to 42% (R189 000). It is made up mainly of an ad valorem duty on a sliding scale up to 30% for expensive vehicles (those costing more than R1-million).

Then there is CO2 tax of 2-3%, which was increased during lockdown and does not necessarily go to financing environmental projects. Then there is VAT of 15% as well as a portion of unrebated import duty. Most OEMs still pay tax on imported vehicles as they do not have sufficient Production Rebate Credit Certificates to rebate the full import duty of 25%.

All these taxes are cumulative as the one is calculated on top of the other. It is not a straightforward adding up of the taxes. This is what results in the average tax on a premium vehicle reaching 42%. These taxes go straight to the fiscus.

NADA says it is pleased that Naamsa has taken a strong stance about taxation and has requested the government to cut them, which would, hopefully, bring the 42% down to 35-38% by removing the carbon tax on exhaust emissions and reducing the ad valorem duty, which is a value-based tax on items considered a luxury in South Africa. Most vehicles should certainly not be termed luxury items in a country with an unreliable and largely inconvenient public transport system.

The presentation made by Naamsa to the government showed that making vehicles more affordable could boost new sales by about 28 000 units. The presentation also showed that the reduction in ad valorem tax would have a neutral impact as the tax on increased sales would offset the lower rate of tax per vehicle. The tax shortfall on new vehicles amounts to about R1.2-billion a month based on 12 000 fewer cars being sold each month currently.

Heavily taxed fuel is another burden vehicle users must bear. It is the biggest single cost factor for most transport operators and improving the quality of fuel to suit the latest, low emission engines, seems to have been put on the backburner in South Africa.

Taxes and levies on fuel presently make up almost 70% of the fuel price. The Basic Fuel Price (BFP), which is made up of the international oil price combined with the rand-US dollar exchange rate, made up the largest component of the fuel price between 2009 and 2014. However, according to lobby group Outa the government’s increasing taxes and levies applied over the past decades – as well as a big drop in the oil price in April – the BFP component now accounts for only about 30% of the retail fuel price.

The various taxes and levies that make up the “non-petroleum related costs” comprise the fuel levy, Road Accident Fund, wholesale and retail profit markings and a few smaller transport and storage costs. Outa said that in 2009 the combined value of these charges amounted to R3,61 or 49% of the total retail fuel price, while it now stands at R9,48 and makes up 68% of the fuel price despite the reduction in the international oil price.

Organisations such as NADA and Outa repeatedly call on government to stop continually using fuel levy increases as a means of boosting the fiscus, as it is another force impacting on the country’s economic recovery, but it has not had a positive response from the authorities. Unfortunately, the way the country is sinking into a further financial mire it seems highly unlikely that it will be able to provide a helping hand to the struggling motor industry. It certainly is a sad situation.

 

By Roger Houghton