Who cares about SA´s new car tax?

Written by: Adrienne Brookbanks

The motor transport industry is responsible for a tenth of the world’s CO2 emissions. The depletion of our natural resources as well as South Africa’s commitment to cut emissions by 35% below current expected levels by 2020 during last year’s United Nations Climate Change Conference has lead government to look at alternative ways to reduce our country’s carbon emissions.

South African government passed the new “green tax” on cars and this tax came into effect on the 1st of September 2010. This tax applies to people buying new cars that release over 120g of CO2 per kilometre. For every extra gram of CO2 that the car emits, the price of the vehicle increases by R85.50.

What are other countries doing about car emissions?

This tax is not unique to South Africa. European Parliament implemented a similar tax on passenger vehicles in April 2009. The tax is applicable to all cars that emit 130g of CO2 per kilometre. America, on the other hand, implemented a Car Allowance Rebate System, commonly known as “cash for clunkers”, that replaced over 690,000 cars on the roads with more fuel-efficient models. Japan has a tax and incentive scheme that rewards people using more environmentally-friendly cars and taxes the fuel guzzlers on the road.

This type of tax doesn’t get implemented overnight and South Africa will also be using a phased-in approach in order to tax all the cars (Europe is also using this approach). The tax initially applies to the sale of new passenger vehicles, but from March 2011, the tax will apply to double cabs and new light commercial vehicles will follow suit in 2014.

How much more will a car cost?

According to Absa Vehicle and Asset Finance, the green car tax will increase the price of a car by 2 – 3%. The National Association of Automobile Manufacturers of South Africa (NAAMSA) released a statement saying that, 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. In Europe, where they have been cashing in on car taxes for a year and a half, motor vehicle taxes amounted to €377-billion last year (which equals to 3.4% of their GDP).

Does anybody care?

Southafrica.info recently reported that new car sales were higher than expected towards the end of August and this was due to “customers seeking to avoid the new car emissions tax.” Absa reported that although July’s car financing applications were the same usual, there was a 54% increase in applications compared to August last year, proving that the green car tax has caused many buyers to purchase their cars before the tax was implemented in September.

Critique on the green tax

NAAMSA commented that, in respect of light commercial vehicles, there was at present no internationally applied test method and procedure for the determination of CO2 emissions levels. The tax is based on engine size, but Naamsa denies that it is possible to accurately determine CO2 emissions by using engine capacity as proxy. The tax gets implemented at point of production for locally manufactured cars and at the point of importation – not at point of sale, a point which NAAMSA disputes because it doesn’t ensure visibility to the end user.

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,” argues NAAMSA.

Other critique on South Africa’s green car tax is that government is penalising people buying new cars instead of tax incentives, such as a subsidy, to people investing in newer technologies, such as hybrids, for examples. Japan, who offers tax incentives for vehicles with high fuel efficiency and low CO2 emissions (amongst other eco-friendly driving initiatives) has seen their country’s vehicle emissions peak in 2001 and continue to fall ever since. The sector’s CO2 emissions in 2001 were 267-million tons, but by 2007 this decreased to 246-million tons, over-achieving the projected reduction target for 2010.

Also, South African automotive companies can’t offer Euro IV/Euro V enabling fuel, which would provide “quantum leap benefits in the reduction of CO2 emissions of new cars sold,” says NAAMSA.

Will the new car tax work?

The average CO2 emissions of new cars sold in the United Kingdom have continued to fall during the first half of 2010, reported UK trade group Society of Motor Manufacturers and Traders (SMMT) in July. This downward trend is thanks to new cars being developed to reduce emissions and fuel consumptions.

According to international automotive data provider JATO Dynamics, you need to vary taxation efforts that reward as well as penalise the consumer. Japan’s high-technology economy, for instance, will favour new hybrid and electric cars. Mixing up incentives with taxes is one of the ways to start shifting consumer behaviour towards cleaner, more fuel efficient transport solutions.

The liveeco team

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