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South Africa’s COVID-hit carmakers ask govt to cut taxes on new cars

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Workers install parts into Navara pickup trucks on the assembly line at the Nissan Motor Co. Rosslyn plant in Pretoria, South Africa. Photographer: Waldo Swiegers/Bloomberg via Getty Images

South Africa’s carmakers 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 Reuters.

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 said.

NAAMSA represents global car giants like Nissan 7201.T and Toyota 7203.T which produce vehicles in South Africa, with around 64% marked for export.

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

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 said.

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

The coronavirus crisis is 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 said.

He added that NAAMSA estimated this could create some 4,000 jobs across the industry. Removing the sales tax would result in an additional 1 billion rand ($58.22 million) 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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