These major tax changes could make cars much cheaper in South Africa

The National Automobile Dealers’ Association (NADA) says the automotive industry needs a significant financial stimulus package from the government which will allow it 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 in various forms of taxation, said NADA chairperson Mark Dommisse.

“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 highly taxed fuel levy, annual licence fees, controversial toll fees, and a tyre levy,” he said.

As an example, Dommisse said that tax on the purchase price of a vehicle costing R450,000 currently sits at 42% (R189,000).

This percentage is made up mainly of customs duties and an ad valorem duty on a sliding scale, in excess of 30% for vehicles costing more than R1 million.

“Add in the CO2 tax, increased during lockdown last year, that does not necessarily go to financing environmental projects.

“In addition, there is VAT, which currently sits at 15%, as well as an additional tax accounting to 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%.”

Dommisse said that all these taxes are cumulative, and this is why the average tax on a premium vehicle reaches 42%. All these taxes go straight to the fiscus.

“We are therefore very pleased that National Association of Automobile Manufacturers of South Africa (Naamsa) has taken a strong stance on the subject of taxation and has requested the government to cut taxes, 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.

“This has the potential to 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,” said Dommisse.

A presentation made by Naamsa last year 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 on taxes 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 per month based on 12,000 fewer cars being sold each month currently.


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These major tax changes could make cars much cheaper in South Africa