Body blow for motorists and industry

BUDGET / 22 FEBRUARY 2018, 08:00AM / ROY COKAYNE

JOHANNESBURG - The motoring public and industry have received a body blow in the Budget, with the 1 percentage point increase in the VAT rate to 15 percent set to increase the price of cars and other goods by 7.1percent.

The hike in vehicle emission tax rates will further increase the price of many vehicles.

The total 52c a litre increase in the fuel price from April 4, from a combination of rises of 22c a litre in the general fuel levy and 30c a litre in the Road Accident Fund (RAF) levy, will negatively impact on the disposable income of households and the affordability of motoring.

Effective from April 1, the maximum ad valorem excise duty for motor vehicles would also increase from 25percent to 30percent but would only increase the price of the most expensive vehicles.

Duane Newman, a director of Cova Advisory & Associates, said the about 20percent increase in the CO2 vehicle emissions tax would result in consumers paying about R1000 more on smaller-end cars and about R10000 more on bigger cars.

Newman said the increase in the ad valorem excise duty on motor vehicles was only at the top end and would only impact on expensive vehicles, such as Ferarris and Maseratis.

“It’s only a small portion of the imported vehicles and only on the guys that can afford to pay it and won’t notice it,” he said.

Azar Jammine, the chief economist at Econometrix, said the government was clearly trying to “milk the wealthy” through the increase in the ad valorem excise duties.

“Many of the tax increases, including the increase in estate duty, are directed at increasing taxes on the wealthy,” he said.

Newman added that the introduction of the carbon tax from January 1 next year announced in the Budget created the potential for double tax on fuel if the carbon tax was introduced and the CO2 emissions tax was not removed.

It was important for people to comment on the carbon tax by next month and about this potential double taxation.

Jammine said the VAT rate hike would counterbalance the stimulating effect potentially arising from the low inflation rate, which would have emerged from the strength of the rand and the potential for interest rate cuts.

Big ticket

He said that the impact of the VAT rate increase on the vehicle market could proportionally have a more negative impact than on most other goods, this to the extent that vehicles were more discretionary and a big ticket item.

“On the margin, people will tend to spend more on essential goods, such as food and maybe clothing, and will tend to cut back on vehicles proportionally.

“This could, in effect, cut a couple of percentage points off the potential growth in car sales,” he said.

Andrew Kirby, the president of the National Association of Automobile Manufacturers of South Africa (Naamsa), said vehicle affordability in South Africa would be compromised by the substantial increase in ad valorem vehicle excise duty rates together with the increase in VAT, emissions taxes and the fuel levy.

These increases would probably also have a significant impact on the size of the domestic market, he said.

“The premium car segments would be worst affected. Already affordability was increasingly under pressure as a result of the rising tax burden.” Kirby said the combined impact of the increases in the Budget had contributed to a disproportionate upfront fiscal cost to consumers.