Car prices in South Africa are in for the biggest change in 31 years, as the Department of Trade, Industry and Competition (DTIC) is expected to announce the outcome of its review of the ad valorem duty.
This duty was introduced in 1995 as a luxury excise duty on every vehicle sold in South Africa, and is calculated on a sliding scale tied to a vehicle’s recommended retail price.
According to the Industrial Development Strategy (IDS), which President Cyril Ramaphosa’s cabinet approved, it has never been adjusted for inflation.
The IDS proposed adjusting the ad valorem tax structure to allow locally manufactured vehicles to compete on price with imported vehicles to benefit the local automotive sector.
The Electric Mission’s executive director, Hiten Parmar, explained that the IDS is a strategic response to a rapidly shifting global and domestic economic landscape.
“The strategy rests on three pathways – decarbonisation, diversification and digitalisation – and names the automotive sector, alongside steel and mining, as strategic industries earmarked for protection,” he said.
According to Parmar, the review comes at a time when local consumers are increasingly seeking affordable new energy vehicles (NEVs) to mitigate volatile fuel costs.
“Because electric vehicles are currently more expensive to produce, this value-based structure inflates their prices even further, making them harder for consumers to afford,” he said.
The DTIC is expected to complete the reviews by next month. Parmar believes this will help to bolster the country’s local car manufacturers.
He explained that the automotive industry is a cornerstone of the national economy, contributes roughly 30% of local manufacturing value and supports significant employment and export activity.
“But progress towards the South African Automotive Masterplan’s 2035 goals has stalled,” said Parmar.
“Production volumes remain off target, and the current localisation rate of 39% falls well short of our ambitions.”
South Africa was falling behind
According to Parmar, South Africa was falling behind in building the industrial momentum required for long-term competitiveness in vehicle manufacturing.
He explained that South Africa’s automotive industry will increasingly rely on zero-emission vehicles, including battery-electric and hydrogen fuel cell vehicles, for local and export markets.
That is because the country’s biggest export markets – the UK and Europe – have set deadlines for the phasing out of petrol- and diesel-only models over the next ten years.
“Internal combustion engine vehicle sales reached their peak in 2017 and are now in long-term decline,” Parmar said.
“The IDS’s decarbonisation pathway treats accelerating investment in energy, steel and automotive decarbonisation as a choice South Africa can no longer afford to defer.”
He added that both industry and consumers stood to benefit from the review, which offered an opportunity to implement targeted reforms, including:
- Localisation-linked tax parity — Structuring taxes so that locally assembled zero-emission vehicles gain an advantage over full imports
- Supporting local assembly — Creating a policy environment that acknowledges investment in battery manufacturing, components and completely knocked-down (CKD) assembly
- Consumer accessibility — Removing barriers to affordable zero-emission vehicles to broaden market access.
He explained that the aligned timing of the IDS and the Section 12V tax deduction will also allow manufacturers to accelerate the shift to zero-emission vehicle production.
This incentive allows for a 150% deduction on qualifying investment in battery-electric or hydrogen fuel cell vehicle production between 1 March 2026 and 1 March 2036.
“The two policy signals also carry potential for new jobs: a more conducive regulatory environment increases the likelihood that OEMs will localise the production of zero-emission vehicles,” he said.
Loading ...
