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South African government promises new tax measures for electric cars

In his Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, Minister of Finance Enoch Godongwana said the South African government plans to “implement tax and expenditure measures” to support the automotive sector’s transition to new-energy vehicles (NEV).

While no specifics were mentioned, Godongwana said the broader strategy includes “collaborating with other African countries to develop battery production capacity on the continent, by pooling the critical-mineral resource base that Africa is endowed with.”

Additionally, the government will aim to create a comprehensive green growth strategy and industrialisation plan by assessing NEV policy conditions, challenges, and opportunities for diversification and investing in new industries.

“South Africa’s traditional trading partners are intensifying their decarbonisation plans. Many countries introduce carbon pricing mechanisms to make emissions more expensive and incentivise emissions reductions,” said Godongwana.

“This transition will require balancing domestic market demand, establishing renewable energy-based charging infrastructure, and supporting production. The goal is to make sure the sector remains a major contributor to the industrial development of the domestic economy.”

More details about what the South African government’s NEV tax and expenditure measures will comprise will be provided in the February 2024 Budget Review, said the finance minister.

Electric VW ID.2 all Concept

The lifeblood of South Africa’s manufacturing industry

The export of locally-produced vehicles and the direct and indirect employment opportunities that automakers create are invaluable to the South African economy and manufacturing sector, but risk being all but wiped out should the country drag its feet in implementing NEV-friendly policies.

VW, which has been producing cars on local soil since 1948, recently said that South Africa is further down its list for future investment opportunities than other African countries like Ethiopia and Egypt, considering the higher import taxes on NEVs imported to South Africa from Europe paired with a lack of NEV manufacturing incentives.

“Electric-vehicle policies are popping up everywhere. Egypt has one and even Ethiopia, a country that is not known for automotive industrialisation as South Africa is, has an EV policy,” said Martina Biene, MD and chair of VW South Africa.

“Volkswagen has to prioritise countries globally and because of a missing policy, South Africa doesn’t get high up on the list of countries to be prioritised, and why would we be? Every day and every month we are missing out on opportunities for investment that others are getting faster.”

To support the integration of electric cars into the country, the Egyptian government in 2018 exempted EVs from customs duties and allowed the import of EVs that are no older than three years.

Last year, it announced that it would additionally offer subsidies of up to EGP50,000 (R30,000) on the purchase of locally-manufactured EVs, according to Alternative Policy Solutions.

Similarly, to encourage NEV assembly and component manufacturing, Ethiopia exempted all electric cars from VAT, surtax, and excise tax, and exempted completely knocked-down kits from customs duty tax, Clean Technica reported.

In contrast, there are currently no NEV purchase or production incentives in South Africa, and NEVs imported from the European Union are, counterintuitively, being taxed 7% higher than petrol and diesel autos from the same countries.

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