The public will bear the brunt of the imminent ad valorem carbon-dioxide emissions tax on new vehicles that will come into effect in March 2010 as automakers pass on the price increase of between two and eight percent.

The increases will dent affordability and suppress the expected recovery in the new-car market from early 2010.

The budget review in February said better fuel-efficiency was important to reduce “greenhouse gas” emissions and suggested the existing ad valorem excise duties on vehicles be adjusted to incorporate CO2 emissions as an environmental criterion from March 2010.

David Powels, president of the National Association of Automobile Manufacturers of SA and managing director of Volkswagen SA, said vehicle buyers would have to pay the new tax as the auto industry would not absorb it.

Powels said the retail price of cars would increase by two to eight percent depending on their CO2 emission levels.

He said the auto industry in principle fully supported the drive to reduce CO2 emissions but it was in a “chicken and egg situation” because the technology to achieve this was available but more fuel-efficient and environmentally friendly engines could not be imported until cleaner fuel was available.

The government, he said, was putting the cart before the horse by introducing the tax before such fuel was available.

Powels said the Department of Trade and Industry was in favour of delaying the implementation of the emissions tax but the Treasury was not because it needed the revenue.

The department confirmed in August that it was engaging the National Treasury about the deferment of the shift from ad valorem to CO2 taxes on vehicles “pending a comprehensive road map for the oil industry to produce and supply cleaner fuels in South Africa”.

The department failed to respond last week to comment on the status of its engagement with the National Treasury.

Lindani Mbunyuza, a Treasury spokeswoman, said on Friday that Finance Minister Pravin Gordhan would be tabling the medium-term budget policy on October 27 “so we have no comment on this”.

Environmental adviser to the SA Petroleum Industry Association, Anton Moldan, said on Friday the industry was working on and engaging the government about the introduction of cleaner fuel but “needed direction from government” as the price of fuel was regulated and tied in with the costing for the introduction of cleaner fuel.

“We can’t invest R40-billion without having certainty on where we are going in future in terms of the sulphur content of fuel. We need long-term regulatory certainty before anybody makes a decision on that kind of investment,” he said.

Moldan said the industry was not trying to delay the introduction of cleaner fuel but it took time for new regulations to be promulgated and only then could oil company shareholders be asked to approve a certain budget. “It is a five-year process. We want regulatory certainty as soon as possible to get the process under way,” he said.

Powels said the consequence of the delay was that vehicle manufacturers had to continue with lower level engines and customers would have to pay more to maintain their cars while also paying the CO2 tax and higher fuel costs because older engine technology was not nearly as efficient as current technology.

Vehicle buyers and the vehicle industry would suffer but not the oil industry, Powels said.

PUBLICATION: Business Report
AUTHOR: Roy Cokayne
DATED: 19th October 2009