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September 30, 2020

South African automakers plead for tax stimulus

South African car makers have asked the government to reduce taxes on new vehicle purchases as part of a proposed stimulus package for the coronavirus-hit sector, according to a presentation from an industry body seen by the Reuters news agency.

By Olly Wehring

South African car makers have asked the government to reduce taxes on new vehicle purchases as part of a proposed stimulus package for the coronavirus-hit sector, according to a presentation from an industry body seen by the Reuters news agency.

The proposal, aimed at boosting local sales of new cars as rising coronavirus cases threaten demand in key export markets, was presented to the government on Monday by the National Association of Automobile Manufacturers of South Africa (NAAMSA), its chief executive Mike Mabasa told Reuters.

NAAMSA represents automakers like Nissan and Toyota which produce vehicles in South Africa, with around 64% for export.

Automakers want to lower the tax rate for new vehicles from 42% of the price currently to between 35% and 38%, Mabasa told Reuters.

Removing a tax on carbon dioxide emissions imposed at purchase and reducing an ad valorem levy – a value-based tax on items considered a luxury in South Africa – could together boost new sales by almost 28,400, NAAMSA's presentation showed.

Without this, some NAAMSA members who rely heavily on export sales could find their South African operations become unviable, Mabasa warned.

"If the investments (car makers) are making are not giving them the required return, they will certainly consider leaving the country as a result of that," he told Reuters.

That would hurt an ambitious 2035 plan to boost auto manufacturing in South Africa, a key element of President Cyril Ramaphosa's attempts to revive growth and bring unemployment down through industrialisation.

Reuters said the coronavirus crisis was already thought to have put some key aims of the plan out of reach as a lockdown brought the industry to a standstill and both local and global demand collapsed.

The additional demand for new vehicles resulting from the proposed tax cuts would be equivalent to around a month of sales, Mabasa told the news agency.

He added NAAMSA estimated this could create some 4,000 jobs across the industry. Removing the sales tax would result in an additional SAR1bn (US$58.22m) for the country's strained treasury while the reduction in the ad valorem tax would have a neutral impact as higher sales would offset the lower rate of tax per vehicle, NAAMSA estimated.

Automakers also asked the government to set aside a portion of existing coronavirus relief, such as a COVID-19 fund for small businesses, for transport operators to stimulate fleet renewals.

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