Taking away incentives will hit SA auto sector hard, industry body warns

Reducing rebates on excise duties will negatively impact the competitiveness of the auto industry, members of Parliament heard.

The Standing Committee on Finance on Wednesday heard inputs from the National Association of Automobile Manufacturers of South Africa (Naamsa) on the 2019 draft tax bills.

The amendment in question specifically relates to the calculation of ad valorem duty in the 2019 draft income taxation amendment bill. Naamsa has put forward that the amendment would result in substantial damage of the competitiveness of the local vehicle manufacturers and retail sales in South Africa.

Naamsa represents seven auto industry original equipment manufacturers (OEMs) and most independent importers and distributors of passenger, medium and heavy commercial vehicles in South Africa. Members include BMW, Ford, Isuzu, Toyota, VW, Nissan and Mercedes Benz.

In a letter to the committee – dated September 6, 2019 – the body's CEO Michael Mabasa detailed background information on the existing incentives in the industry.

The incentives are made available through government's Trade Related Investment Measures (TRIM). The incentives encourage OEMs to set up vehicle production platforms in SA with the intention of exporting vehicles globally. Incentives have normally been in the form of rebate certificates to reduce customs and excise duties and have been key in driving significant export volumes.

"The rebating of customs and excise duties has always been an inherent aspect of the TRIM and represents a promise from government to support OEMs that comply with TRIM regulations," Mabasa said in the letter.

He suggested that the available programmes have been successful as the auto industry now accounts for 7% of GDP. The incentives have helped OEMs compete with other vehicle manufacturing countries, Mabasa highlighted. "The robustness of incentives and their ability to remain unchanged for long periods of time is key to securing ongoing projects in the form of new model production," Mabasa said.

But the proposed ad valorem excise duty amendment would reduce the package of incentives, impacting the competitiveness of OEMs in South Africa, Mabasa said.

He also warned that competing manufacturers in the rest of Africa such as Morocco, Nigeria, Ghana, Kenya, Algeria and Ethiopia, also offer incentives which presents a threat to local OEMs.

Increased cost of vehicles

Mabasa also said that the proposed amendment for calculating ad valorem would add between 2% and 10% to the cost of imported vehicles. This could "depress" new vehicle demand for certain imported products, he said. The cost would not be carried by OEM or importer but would be passed on to the end customer, he said.

Business Day reported earlier that Treasury officials who were at the briefing on Wednesday said the ad valorem duty would be reduced to be revenue neutral for the fiscus and to mitigate the impact on the automotive industry. Quoting Treasury's chief director of economic tax analysis Chris Axelson, government would engage in more consultation before the new ad valorem structure is finalised.

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