Vehicle Emissions Tax Just Another Tax or a Win For The Environment?
10 September 2012
Posted by: Author: Rudie Nel and Gerhard Nienaber
Vehicle Emissions Tax Just Another Tax or a Win For The Environment?
As one aspect of fiscal reform,the South African Government implemented a vehicle emissions taxon passenger vehicles effective from1 September 2010.The purpose of this vehicle emissions tax is to attempt to reduce CO2 emissions by influencing consumer purchasing decisions (encouraging the purchase of lower CO2-emitting vehicles).
Since its introduction, the ability of vehicle emissions tax to reduce CO2 emissions has been questioned, but not yet assessed due to the likely difficulty of isolating the effect the introduction of the tax had directly on reducing CO2 emissions.It has, however, been indicated that the prospects for the vehicle emissions tax achieving its purpose in South Africa could be affected by the design of the vehicle emissions tax (Nel, 2009).
Furthermore,the vehicle emissions tax might be perceived as just another tax which could affect the prospect of it reducing CO2 emissions.Considering the design of the vehicle emissions tax.The design of the vehicle emissions tax refers to the following:
•The stage at which the tax is levied.
•The assessment base of the tax.
•The intended taxpayer.
The above-mentioned factors could influence the prospects of the vehicle emissions tax reducing CO2 emissions in South Africa.The stage at which the tax is levied Vehicle green taxes can be levied at three different stages, being at purchase, on ownership or on usage.It is suggested that levying vehicle green taxes in certain stages might be more effective in reducing CO2 emissions than in other stages - refer to Table 1.
Table 1- Different stages of vehicle green taxes and their effect on reducing CO2 emissions
|Stage||Description||Effect on reducing CO2|
|Purchase tax||Once-off at|
Sales taxes and
effective in reducing
the decisions by
|Ownership tax||Recurrent over|
(not directly linked
Annual licensing fees
|Minimal effect set|
in proportion to
at reducing CO2
|Usage tax||Recurrent and|
directly linked to
reduction in CO2
of the reduction as
result of decrease in
Based on result of study performed Hayashi, Kato and Val(2001:124).
The vehicle emissions tax implemented is levied at the purchase stage and might therefore not be most effective in influencing the decisions of consumers to reduce CO2emissions.Usage taxes (such as fuel levies) could result in the highest possible reduction of CO2 emissions but in light of the current economic environment in South Africa and fuel prices it might not be the most viable option for further increases in fuel levies in order to reduce CO2 emissions.
The assessment base of the tax
The assessment base refers to the base on which the taxis levied (for example VAT levied on consideration).Taxes assessed based directly on CO2 emissions are likely to have the highest possible impact on reducing CO2 emissions if implemented.Based on an analysis of current taxes/levies on vehicles in South Africa there are different assessment bases:
Table 2- Current Taxes/Levies on vehicles in South Africa
taxes / levies
|Purchase tax||Value Added Tax|
Customs and excise
Vehicle emissions tax
|Ownership tax||Annual licensing|
levies such as toll
fees and parking
|Usage tax||Transport fuel levies:|
- General fuel levy
- Road Accident Fund levy
- Customs and
levied based on
The vehicle emissions tax will be levied at R75 per gram per kilometre(g/km) of CO2 emissions which exceeds 120g/km and is currently the only vehicle tax/levy assessed directly on CO2 emissions (Table 2).The ideal would be to have a mixture of the different taxes to obtain the maximum reduction in CO2 emissions (Hayashi et al., 2001:135-138).This indicates room for expanding current taxes/levies on vehicles in South Africa to include CO2 emissions in the assessment bases of ownership and usage taxes as well.
The intended taxpayer
The vehicle emissions tax is aimed at the consumers in the transport sector.As a result, there would be additional costs for consumers,which could have a negative effect on their attitude towards these taxes. Consumers might perceive these taxes simply as an income generating exercise by government and may consequently not fully value the benefit of reducing CO2 emissions (Kunert and Hartmut 2007:315).
In addition, the vehicle emissions tax (a purchase tax)might not be particularly effective in reducing CO2 emissions by influencing the decisions of consumers.Implementing a ‘feebate’ policy is a possible alternative which could facilitate shifting the focus away from consumers. A feebate policy consists of additional taxes which are levied and consequently allocated as incentives (Greene, Patterson, Singh and Li, 2005:758). It is therefore recommended that the vehicle emissions tax recovered should be earmarked and allocated to vehicle manufacturers as incentives to invest in fuel economy technology (a feebate policy) (Nel, 2009).
The focus on consumers might negatively affect the prospects of the vehicle emissions tax reducing CO2 emissions, as consumers might not fully value the benefit of reducing CO2 emissions and merely perceive it as just another tax. Implementing a fee bate policy could also result in an improvement of the possible negative perception of consumers towards the tax and provide continuous incentives to manufacturers to invest in fuel economy technology – a combination which could result in a higher reduction in CO2 emissions.
Creating environmental awareness
The implementation of the vehicle emissions tax by government is no doubt a step in the right direction. The prospects of the vehicle emissions tax achieving its purpose of CO2 emissions could be negatively affected by the focus on consumers. This concern could,however, be addressed through the implementation of a fee bate policy which also has the added benefit of providing continuous incentives for vehicle manufacturers to invest in fuel economy technology.
The deductibility of the incurred vehicle emission tax in terms of the provision of the Income Tax Act should also be considered carefully as it might be that certain taxpayers may benefit, in the form of a tax
deduction, if the vehicle emissions tax is incurred (Nel, 2009). The incentive of a tax deduction could counteract the intended disincentive of vehicle emissions tax.
That said, if government initiative to implement the vehicle green taxes succeeds only in making consumers more aware of their carbon footprint, it might have already done enough. Creating awareness could result in consumers taking responsibility for their actions and contribute to a change in behaviour and choices in order to be more environmental-friendly, resulting in a win for the environment.
Greene, DL, Patterson, PD, Singh, M and Li,J (2005) Feebates, rebates and gas-guzzler taxes: a study of incentives for increased fuel economy. Energy Policy, 33:757–775. [Online]Available from: http://www.sciencedirect.com[Downloaded 2008-05-03].
Hayashi, Y, Kato, H and Val, RT 2001. A model system for the assessment of the effects of vehicle and fuel emissions tax on carbon dioxide emissions. Transportation Research Part D6, 2001:123-139. [Online]Available from: http://www.sciencedirect.com[Downloaded 2008-10-01].
Kunert, U and Hartmut, K 2007. The diverse structures of passenger car taxation in Europe and the EU Commissions proposal for reform.Transport Policy, 14:306-316. [Online]Available from: http://www.sciencedirect.com[Downloaded 2008-05-02].
Nel, R. 2009. Proposed vehicle green taxes in South Africa: What are the prospects of it achieving its purpose? Unpublished magister taxation thesis. University of Pretoria.
Source: By Rudie Nel CA (SA), Gerhard Nienaber CA (SA) (TaxTALK)