The Treasury has heard the strong pleas made by players in the motor industry to revoke proposed changes to the customs and excise regime, which would have added about R2.5bn to its cost structure.

At issue are proposed changes to the Customs and Excise Act, which would require that all customs duty payable on imported goods be taken into account when calculating the value for the purposes of ad-valorem duty on such goods. Currently only nonrebated customs duty is used for the calculation.

On Wednesday at a meeting of Parliament’s finance committee the National Association of Automobile Manufacturers of SA (Naamsa) and Mercedes Benz SA (MBSA) added their voices to arguments presented previously against the proposed changes to the customs regime made by BMW and Motus, which imports Hyundai, Kia, Mitsubishi and Renault vehicles. The industry estimates that the proposed change would add about R2.5bn to its costs. It also argues that major investment decisions have been made on the basis of already accepted policies.

Responding to the submissions, the Treasury's chief director of economic tax analysis, Chris Axelson, said that the motor industry’s arguments were accepted for the time being. The proposed change would not be introduced in 2019 pending consultations with the industry and furthermore the ad-valorem tax would be reduced under any new regime so that it was revenue neutral.

“Treasury will adjust the current ad-valorem formula for the overall change to be revenue-neutral for the fiscus to mitigate the impact on the automotive industry. It is proposed that government engage further with the executive oversight committee which has overseen the development of the SA Automotive Masterplan (Saam) before finalising the new ad-valorem structure to enable a further announcement in the budget in February next year,” Axelson said.

He explained that a reduced ad-valorem duty would have a differential impact on different motor manufacturers.

Axelson said Treasury accepted the industry view that the change to the customs duty regime created policy uncertainty over incentives which will in any event change when a new Saam package of incentives takes effect from 2021. Treasury’s proposed changes would be held over until Saam took effect.

Ismail Momoniat. Picture: TREVOR SAMSON
Ismail Momoniat. Picture: TREVOR SAMSON

Treasury deputy director-general Ismail Momoniat said it understood that there was a need for certainty as soon as possible. What was however certain was that the ad valorem tax would be reduced.

Naamsa CEO Michael Mabasa welcomed the announcement saying this would allow more time for consultations.

Motor manufacturers have argued that any loss in the value of savings from the production credit rebate certificates would have a negative effect on the future cost competitiveness of locally produced vehicles in the export markets. They argued that trade-related investment measures and support measures must remain stable if the industry is to grow and create jobs. The industry contributes about 7% to GDP.

MBSA CEO Andreas Engling warned that the change would have  negative effects on the motor manufacturer’s stability and result in lower exports and volumes. He pleaded for the proposed change to be withdrawn.

MBSA produces Mercedes Benz C-class vehicles — both left- and right-hand drive — for the local and export markets. The lion share of all C-class units produced worldwide originate from the MBSA’s East London plant.

“The current treatment of ad valorem supports a competitive industry and the potential to provide a wider spectrum of vehicles into the SA market and also support the ability of manufacturers to produce for the wider global market to obtain economies of scale,” Engling said in his submission.

“The proposed changes will significantly impact the local vehicle market which is already in a declining state with more pressure on consumers’ disposable income in an already weak macroeconomic environment.

“More crucially, MBSA produces the majority of its vehicles for the global market. The on-cost to the SA automotive industry would have a severe financial impact should there no longer be the prevailing duty offset mechanism. This policy change will negatively impact the ability of the SA automotive industry to remain competitive with its global counterparts and its ability to create opportunity for further localisation and job creation in the SA market.”

Engling noted that MBSA was competing not just with other original equipment manufacturers producing in SA but also with other global Daimler plants around the world. Mercedes Benz is a subsidiary of Daimler.