Less tax = more sales

The National Automobile Dealers’ Association (NADA) has appealed to government to provide a significant financial stimulus package to the automotive industry to help accelerate its recovery processes.

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In line with this, Nada has added its voice and support to the submission to government by the National Association of Automobile Manufacturers of South Africa (Naamsa) last year calling for a reduction in the tax paid on new vehicles.

NADA chairperson, Mark Dommisse, said 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 in various forms of taxation.

“These taxes make up only a part of the massive tax burden that motorists and transport operators have to ultimately bear, which includes, for example, the fuel levy, annual licence fees, controversial toll fees, and a tyre levy,” he said.

Dommisse said a presentation by Naamsa to government last year showed that making vehicles more affordable could boost new sales by about 28 000 units and that a reduction in ad valorem tax would have a neutral impact on taxes because the tax on increased sales would offset the lower rate of tax per vehicle.

Naamsa said the tax shortfall on new vehicles amounts to about R1.2 billion a month based on 12 000 fewer cars currently being sold each month. Dommisse said tax on the purchase price of a vehicle costing R450 000, for example, is currently 42% or R189 000 and largely comprises of customs duties and an ad valorem duty on a sliding scale in excess of 30% for vehicles costing more than R1 million.

He said the CO2 tax and 15% VAT must be added to this plus an additional tax on a portion of the unrebated import duty. This is because most original equipment manufacturers (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%, he said.

Dommisse said all these taxes are cumulative, which is the reason the average tax on a premium vehicle reaches 42%, with all these taxes going straight to the fiscus.

“We are therefore very pleased that Naamsa has taken a strong stance on the subject of taxation and has requested government to cut taxes by removing the carbon tax on exhaust emissions and by reducing the ad valorem duty, which is a value-based tax on items considered a luxury in South Africa.

“This could potentially reduce the 42% cumulative tax amount to between 35% and 38%. Most vehicles should certainly not be termed luxury items in a country with an unreliable and inconvenient public transport system,” he said.

Dommisse added that heavily taxed fuel is another burden that vehicle users have to bear and is the biggest single cost factor for most transport operators. He said taxes and levies on fuel at the moment account for almost 70% of the fuel price.

Increases by government in the taxes and levies on fuel over the past decade have, according to the Organisation Undoing Tax Abuse (Outa), resulted in the Basic Fuel Price (BFP) now only accounting for about 30% of the retail fuel price after being the largest component of the fuel price between 2009 and 2014.

The BFP is made up of the international oil price combined with the rand/US dollar exchange rate.

Outa in 2009 claimed that the various taxes and levies that make up the “non-petroleum related costs” of the fuel price, comprising the fuel levy, Road Accident Fund, wholesale and retail profit markings and a few smaller transport and storage costs, amounted to R3.61 or 49% of the total retail fuel price.

These various taxes and levies now account for 68% or R9.48 of the fuel price despite the reduction in the international oil price.

“Organisations such as 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 negatively on the country’s economic recovery,” Dommisse said.

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