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Prospects of vehicle emissions tax reducing CO 2 emissions in South Africa

Prospects of vehicle emissions tax reducing CO 2 emissions in South Africa. Introduction - South Africa's automotive industry. Accounts for about 10% of South Africa's manufacturing exports - crucial cog in the economy Contributes about 7.5% to South Africa's gross domestic product (GDP)

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Prospects of vehicle emissions tax reducing CO 2 emissions in South Africa

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  1. Prospects of vehicle emissions tax reducing CO2 emissions in South Africa

  2. Introduction - South Africa's automotive industry • Accounts for about 10% of South Africa's manufacturing exports - crucial cog in the economy • Contributes about 7.5% to South Africa's gross domestic product (GDP) • Provides employment to about 36 000 people

  3. Vehicle emissions tax • Separate tax effective from 1 September 2010 levied on new vehicles per gram per kilometre of CO2 emissions exceeding 120g/km (SARS 2010:192) • USD$ 10,56 per gram exceeding 120g/km • Average tax rate of between 2,3% - 3,6% expected (SARS 2010:192) • Purpose = attempt to reduce CO2 emissions by influencing consumer purchasing decisions (encouraging purchase of lower CO2-emitting vehicles)

  4. Vehicle emissions tax Prospects of achieving its purpose in South Africa could be affected by the following factors (Nel 2009:4): • The design of the vehicle emissions tax • Effective in reducing CO2 emissions? • Risk of unilateral implementation? Could affect competitiveness • Legislation • Influence fiscal policy and planning as well as the effectiveness of the tax base or the instruments used • Consumer attitudes • Fiscal policy should not only target consumers

  5. The design of the vehicle emissions tax • A model system for the assessment of the effects of vehicle and fuel emissions tax on CO2 emissions (Hayashi, Kato & Val 2001) • Categorised into three stages: • Purchase tax • Ownership tax • Usage tax • Levying taxes in certain stages might be more effective in reducing CO2 emissions than in other stages

  6. The design of the vehicle emissions tax

  7. The design of the vehicle emissions tax

  8. The design of the vehicle emissions tax

  9. The design of the vehicle emissions tax

  10. The design of the vehicle emissions tax

  11. The design of the vehicle emissions tax

  12. The design of the vehicle emissions tax

  13. The design of the vehicle emissions tax

  14. The design of the vehicle emissions tax

  15. The design of the vehicle emissions tax

  16. The design of the vehicle emissions tax

  17. The design of the vehicle emissions tax

  18. The design of the vehicle emissions tax

  19. The design of the vehicle emissions tax

  20. Weaknesses in design of vehicle emissions tax • Focus on consumers • Focus on new vehicles • Current status of South African motor industry • No distinction between petrol and diesel driven vehicles

  21. Deductibility in terms of the South African Income Tax Act • The purpose of the vehicle emissions tax is to discourage the purchase of vehicles that emit higher CO2 emissions. • A tax benefit (tax deduction) could mitigate the effect of the vehicle emissions tax to act as a deterrent. • Based on study performed: • Provisions of South African Income Tax Act do allow for a deduction for the vehicle emissions tax.

  22. Conclusion • Vehicle emissions tax (purchase tax) is a step in the right direction • Design could however not be most effective in reducing CO2 emissions • Could be expanded to result in most reduction of CO2 emissions

  23. Alternatives for vehicle emissions tax • A “feebate” policy and investing in fuel technologies • Consisting of “carrots” (incentives) and “sticks” (additional taxes) • Study performed in United States argued the merit and the importance of manufacturers’ adoption of fuel economy technologies, which accounted for about 90% of the overall increase in fuel economy (Greene et al. 2005:758-759) • Vehicle emissions tax earmarked and allocated to vehicle manufacturers to encourage investment in technology to reduce CO2 emissions • Increasing fuel levies (should be pro-poor) • Introducing new charges (should be carefully considered)

  24. Vehicle emissions tax Recommendations • Investigate implementation of a “feebate” policy and investing in fuel technologies Tax authority Incentives Taxpayers Vehicle manufacturers Investments in technology to reduce CO2 emissions

  25. Concluding remarks • It is not only the government’s responsibility • Creating awareness of “carbon footprint” • Most effective fiscal reform initiative in reducing CO2 emissions might not be one that forces people to contribute, but rather one which encourages people to contribute and then rewards them if they do (Nel 2009:76) • Public participation and discussions among the different stakeholders (government, taxpayers and the motor industry)

  26. Questions ?

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