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n announcing a mildly expansionary budget to support the South African economy over the short to medium term, the Minister had provided reassuring certainty on the maintenance of the status quo applicable to the role of the Reserve Bank and in respect of inflation targeting and exchange rate management. The reaffirmation would be welcomed by investors and financial markets.
NAAMSA also endorsed the Minister’s objectives regarding steps to improve the efficiency in and integrity of government spending in South Africa.
Government’s expenditure priorities would continue to support infrastructure expansion to enhance future economic growth capacity and provided significant increases in funding for a broad range of social support priorities, including, public health care, education training and skills development initiatives as well as additional allocations for industrial and enterprise development programmes.
In regard to the latter, NAAMSA welcomed the allocation of an additional R3,6-billion to the Department of Trade & Industry for industrial policy interventions with the bulk of the funding earmarked to support investment and the growth and development in the vehicle and component manufacturing industries as well as the clothing and textile sectors.
The youth employment incentive measures also represented a welcome innovation in the budget.
Despite severe pressure on fiscal revenue receipts, the Minister had announced welcome personal income tax relief to the extent of R6,5-billion to compensate for the effects of inflation. This would have a positive impact on consumer sentiment and demand.
In regard to the increase in threshold above which interest income would become taxable, NAAMSA felt that the threshold should have been increased well above the proposed R22 300 consistent with the need to boost savings and investment.
CO² Emissions
Regarding the Minister’s announcement to introduce, with effect from 1st September, 2010, a
CO² emissions (fuel consumption) tax based on a threshold of 120g/km and a tax penalty of R75 per g/km above the threshold – Mr Powels confirmed that NAAMSA accepted, in principle, the introduction of environmental taxes on new cars in South Africa.
The purpose of the CO² new car tax regime was intended to send a strong signal to consumers, producers and importers of new cars in South Africa specifically to influence consumer behaviour in favour of more fuel efficient, less carbon emitting vehicles and in the process to improve ambient air quality in the country. In order to be effective in influencing consumer purchasing decisions, it was essential that the tax should be applied at point of sale to ensure visibility to the end customer. A number of technical, administrative and legal issues needed to be addressed to facilitate the introduction of the tax regime and a team of industry experts would assist National Treasury and the SA Revenue Service in this regard.
NAAMSA had advocated the need for an integrated approach within government to CO² emission reduction initiatives. In this context, it was imperative that government should legislate and incentivize the introduction of Euro IV enabling “green” fuel in South Africa, This would provide a quantum leap benefit in the reduction of CO² emissions of new cars sold. Specifically, correct fuel quality could reduce new car emissions by over 20%. Moreover, improved quality fuel contained fewer harmful pollutants, notably benzene and sulphur, which would contribute to improved air quality regardless of the age or type of the vehicle.
A further important requirement to improve urban air quality and reduce the health costs of air pollution in South Africa, was the need for measures to replace older, high pollution vehicles with more fuel efficient, less carbon emitting products. This also represented a matter requiring further attention.
Taxation on new vehicles
Regarding the impact of the additional taxation measures on buyers of new cars, the overall additional cost to consumers, across the board, would be of the order of 2%. The additional tax burden amounted to about R1,2-billion per annum based on 2010 projected new car sales. There was no doubt that an increase to new car buyers of at least 2% would depress sales volumes and could have negative implications on industry employment levels.
NAAMSA would have preferred to have seen more emphasis on an analysis of the socio-economic impact of the planned CO² new car emissions taxation and the 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 was also questionable given the current fragile state of the industry which was 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. The impending higher taxes would do little to assist and support the much needed recovery in domestic sales. |
