Vehicle makers warn carbon tax will impact sales and prices

18th February 2010 By: Irma Venter - Creamer Media Senior Deputy Editor

The National Association of Automobile Manufacturers of South Africa (Naamsa) accepts, in principle, the introduction of an environmental tax on new cars sold in South Africa from September 1, says Naamsa president David Powels.

However, he notes that the measure will push vehicle prices up by about 2%, and that this additional tax burden amounts to about R1,2-billion a year, based on 2010 projected new car sales. 

Powels says “there is no doubt” a price increase of “at least 2% will depress sales volumes and could have negative implications on [automotive] industry employment levels”.

Finance Minister Pravin Gordhan announced in his maiden budget speech on Wednesday that new passenger vehicles will be taxed based on their certified carbon dioxide (CO2) emissions at R75 per g/km for each g/km above 120 g/km.

The new tax regime favours the use of more fuel-efficient vehicles (often this equates to vehicles with smaller engines) that emit less CO2.

Powels says Naamsa would have preferred to have seen more emphasis on the socio-economic impact of the new emissions tax, and a quantification of the expected impact of the tax regime 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.  

“The timing of the introduction of the tax is also questionable, given the current fragile state of the industry, which is at the initial stage of emerging from an extremely severe recession in domestic new vehicle sales over the past three years, compounded by the negative impact on export sales as a result of the global economic crisis,” says Powels.

“The impending higher taxes will do little to assist and support the much needed recovery in domestic sales.”

To be effective in influencing consumer purchasing decisions, it is essential that the tax should be applied at the point of sale to ensure visibility to the end customer, he adds.

He also says that a number of technical, administrative and legal issues need to be addressed to facilitate the introduction of the tax regime, and that a team of industry experts will assist the National Treasury and the South African Revenue Service in this regard. 

Cleaner Fuel will make big CO2 Difference

Powels says Naamsa has advocated the need for an integrated approach within government to CO2 emission reduction initiatives. 

In this context, it is “imperative that government should legislate and incentivise the introduction of Euro IV enabling 'green' fuel in South Africa”.

The current general fuel production standard in South Africa matches Euro II engines. The higher the number, the less the engine emissions.

By not having cleaner fuel available, the local automotive industry can not introduce the latest technology, cleaner-burning engines.

“This [cleaner fuel] will provide a quantum leap benefit in the reduction of CO2 emissions of new cars sold,” says Powels.

“Specifically, correct fuel quality could reduce new car emissions by over 20%.

“Moreover, improved quality fuel contains fewer harmful pollutants, notably benzene and sulphur, which will contribute to improved air quality regardless of the age or type of the vehicle.”

Powels also says that a further requirement to improve urban air quality and reduce the health costs of air pollution in South Africa is the need for measures to replace older, high-pollution vehicles with more fuel efficient, lower carbon-emitting products. 

Recent measures in some developed countries to stimulate vehicle sales during the recession included government-driven cash incentives for consumers to bring in their older vehicles, and to buy new, more fuel-efficient models.

DTI Support Welcomed
Powels says that the budget proposals represent “an appropriate and pragmatic strategic response” aimed at promoting higher levels of economic growth and employment creation in South Africa, seen against the background of a challenging international and domestic economic environment, and uncertainty about the sustainability of the global recovery.

He adds that Naamsa welcomes the allocation of an additional R3,6-billion to the Department of Trade and Industry (dti) for industrial policy interventions, with the bulk of the funding earmarked to support investment, growth and development in the vehicle and component manufacturing industries, as well as the clothing and textile sectors.