The Department of Trade, Industry and Competition (dtic) is planning amendments to the ad valorem tax on new vehicles to improve the affordability of some cars, particularly entry-level models.
It has also indicated that it may seek to address the dominance of imported vehicles in the South African market, the bulk of which are from India and China.
Andrew Kirby, vice president of manufacturing at automotive business council Naamsa and president and CEO of Toyota South Africa, said on Tuesday he was “very pleased” the dtic had acknowledged that the ad valorem tax is one of the elements of the industry programme that should be rethought.
Kirby said it was introduced in 1995, with the initial intention of serving as a luxury tax on very high-priced vehicles.
“This has not moved with inflation or price increases, so what we have now is a luxury tax being applied to entry-level vehicles.
“This was never the intention and it undermines the ability of the auto sector to provide affordable access to mobility,” he told parliament’s Standing Committee on Trade, Industry and Competition.
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Industry under pressure
This followed dtic chief director for automotives Mkhululi Mlota stating that work is currently underway as part of a plan to mitigate the effect of challenges facing South Africa’s automotive industry.
Mlota said SA’s automotive industry has been facing a lot of challenges recently, with stagnant localisation at around 39%-40% for the past decade, far below the objectives of the SA Automotive Master Plan (SAAM) to achieve local content of 48% by 2025 and 60% by 2035.
He said this limited localisation has also constrained employment creation and supply competitiveness as production volumes are quite low. This, in turn, makes it difficult to achieve economies of scale and undermines the sector’s long-term resilience.
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Imports flooding market
Mlota said the department has seen that the South African automotive market is being serviced largely by imports, which means most of the vehicles produced are not consumed locally.
He added that the market is dominated by imports, the bulk of which are from India and China, and are not just entry-level vehicles but other vehicles that compete on price and technologies and negatively affect the domestic industry.
“It is a picture that we might want to change in order to sustain the domestic industry,” he said.
“We are reviewing the automotive policy. This process has been a bit slow to come by, hence currently we are taking a multi-pronged approach to it, and while there will be a comprehensive review, we are taking certain elements in parallel to look into.
“We are looking specifically at how we can turn the tide on localisation. There are a number of proposals that have come from the industry and other players on how we can do that.
“We should have a final proposal before the end of February on how we can turn the tide on localisation,” he said.
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Localisation plans
Mlota said these cover a variety of issues, including tariffs, some elements of the structure of the SAAM and the Automotive Production and Development Programme 2 (APDP2), so it encourages increasing localisation, as well as “looking at the tax side of things”.
“There are also ideas around how we can use that instrument to support localisation from trying to deal with the ad valorem tax, reviewing its formula and perhaps having better utilisation thereof in a manner that supports local production.”
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‘Rather manufacture here’
Responding to a question about the dumping of new vehicles on the South African market, Mlota said “dumping” is the language of the World Trade Organisation (WTO) in relation to a particular trade behaviour, but stressed the dtic is currently engaging with Chinese and Indian firms “to try and get them to set up shop in South Africa”.
“You can’t do that in a hostile setting,” he said.
Mlota said the Brics bloc of countries are all trying to claim almost a similar share of global export markets, which sometimes means they compete directly with each other – and this can create “a little bit of tension, rather than conflict”.
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Agoa extension
Mlota said the dtic knows South Africa is likely to receive a one-year extension to the Africa Growth and Opportunity Act (Agoa), but is also aware of a great risk that any longer version of Agoa could exclude the country.
“But we still have to negotiate that South Africa must be retained within Agoa, because it makes our life a little bit easier.”
The dtic’s acting deputy director-general for sectors Dr Tebogo Makube said the importation of fully built-up (FBU) cars “is worrisome” because of its impact on the economy, particularly in terms of jobs, local manufacturing and revenue.
“It’s important that we protect the industry. One of the things we are doing is to look at the tariffs, which we are working with Itac [International Trade Administration Commission] on and whether the tariff will assist the industry,” he said.
Makube said the ad valorem tax, a luxury tax on new motor vehicles, is another issue the department is working on and that it will be approaching National Treasury as this is a tax issue.
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Warnings of decline
National Association of Automotive Component and Allied Manufacturers (Naacam) CEO Renai Moothilal said both the dtic and Naamsa have alluded to the fact that it is unlikely the industry will reach any of the master plan’s key performance indicators, but Naacam’s view is that “it’s not just unlikely, it’s not going to happen”.
“Our view is that domestic policy and market shortcomings, plus global changes, have rendered the masterplan targets fairly ineffective.
“We believe an urgent and decisive policy intervention is needed to prevent further decline in the manufacturing sector,” he said.
Moothilal said the APDP2, with all its great intentions, “has proved to be a policy that is stuck in the mud”.
He said the outlook across Naacam members has been largely negative over the last two years, driven by a significant reduction in original equipment manufacturers’ (OEMs) production and outlook.
Moothilal said other concerns include supply chain disruptions, rising raw material costs and escalation trade complexities, but the reality is that component manufacturers rely on volume, and by and large OEMs have cut volumes significantly in recent times.
He said Naacam has over the last two years seen 4 400 retrenchments and 13 company closures.
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SAAM shortfall
Moothilal said local content has declined by an average of 1.1% percent year over the past 25 years, and is “a real pain in the heart” for the component sector.
He said the lack of growth in local content and production volumes has resulted in a R50 billion shortfall in local content value relative to the SAAM target.
“The reality is whatever we talk about [be it] jobs, new employment opportunities, new business creation, transformation, it all hinges on what happens in the localisation space,” he said.
This article was republished from Moneyweb. Read the original here.
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