'Make new vehicles more affordable and boost sales by 28 000 units' per annum - NADA

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• South Africa's automotive industry is under pressure, despite slight improvements in sales.

• NADA calls on government to take drastic steps in saving the industry.

• Part of NADA's proposed solutions is to decrease new vehicle prices.

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While the pandemic has had a dramatic impact on business and industrial landscapes, both locally and abroad, one of the industries that had to adapt or die quickly is the automotive industry, in all its facets. This has meant rethinking how it does business and what stimulus packages would help get it firing on all cylinders again.

Motor manufacturers and importers indeed rallied to the flag with active and meaningful support for fighting the virus, right from its onset in March 2020. Subsequently, they have been very supportive of their retail dealer networks.

At NADA (National Automobile Dealers' Association), we are very proud of how most of our members have been able to manage their businesses through this crippling pandemic. In some cases, the steps taken involved making tough decisions such as right-sizing, retrenching staff, and even considering relocating premises.

car dealer
A Toyota dealership in South Africa

Stimulus package

As it stands, the industry needs a significant financial stimulus package from the government, which will allow the industry to accelerate its recovery processes. The most effective way to increase sales will be to make new vehicles more affordable by reducing the vast 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 bear, including, for example, the highly taxed fuel levy, annual licence fees, controversial toll fees, and a tyre levy. For example, tax on the purchase price of a vehicle costing R450 000 currently sits at 42% (R189 000). This percentage comprises customs duties and an ad valorem duty on a sliding scale, in excess of 30% for vehicles costing more than R1.0 million. 

Add in the CO2 tax, increased during lockdown last year, that does not necessarily finance 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%.

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.

BMW 4 Series
2021 BMW 4 Series

Adjust taxation

NADA is therefore delighted that Naamsa has taken a strong stance on the subject of taxation. It has requested the government to cut taxes by removing the carbon tax on exhaust emissions and reducing the ad valorem duty; 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.

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 positively impact 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 the current trend of 12 000 fewer cars sold each month.

new car,new vehicle sales,new car sales
New vehicles waiting to be sold

Taxed fuel

Heavily taxed fuel is another burden vehicle users have to bear. It is the biggest single cost factor for most transport operators and improving the quality of fuel to suit the latest low emission engines seems to have been put on the backburner.

Taxes and levies on fuel presently make up almost 70% of the fuel price. The Basic Fuel Price (BFP), which is made up of the international oil price combined with the rand/US dollar exchange rate, made up the largest fuel price component between 2009 and 2014. 

However, according to lobby group Outa, the government's increasing taxes and levies applied over the past decades and a significant drop in the oil price in April 2020 have resulted in the BFP component now accounting for only about 30% of the retail fuel price. 

The various taxes and levies that make up the "non-petroleum related costs" comprise the fuel levy, Road Accident Fund, wholesale and retail profit markings, and a few smaller transport and storage costs. Outa said that in 2009 the combined value of these charges amounted to R3.61 or 49% of the total retail fuel price. Currently, it stands at R9.48 and makes up 68% of the fuel price, despite a reduction in the international oil price.

Organisations such as Outa repeatedly call on the government to stop using fuel levy increases to boost the fiscus, as it is another force impacting negatively on the country's economic recovery.

Mark Dommisse, the chairperson of the National Automobile Dealers' Association (NADA).

Mark Dommisse
Mark Dommisse
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