Carbon emissions tax - another TCO cost element

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carbon tax.jpgPurchasing or Fleet Managers should not over-react to the carbon emissions tax on new vehicles, but should rather look at the tax’s impact on vehicle total cost of ownership (TCO), Ashleigh Young, Chief Executive of the TransAuto Group, tells SmartProcurement.

When assessing the suitability of vehicles for a fleet, Purchasing Managers must adopt a holistic view and manage their costs over a vehicle’s full life cycle, says Young.

“It’s no use managing one aspect of a vehicle’s cost, such as the purchase price, and then finding that the vehicle is not fit for purpose. If you under-spec a vehicle to avoid paying the carbon emissions tax, you may well land up paying more in operating costs; if a load-carrying vehicle is under-spec’ed it can result in the engine working too hard to carry the required load, increasing fuel consumption and maintenance costs as components wear faster, and possibly necessitating a premature vehicle replacement,” explains Young.

The introduction of the carbon emissions tax on new cars sold in South Africa from September 1, 2010 will increase vehicle prices by about 2%, said Brand Pretorius, McCarthy CEO, earlier this year.

The tax will be collected from motor manufacturers and importers, said Jabulani Sikhakhane, National Treasury spokesperson, in July. “It will most likely be included in the selling price of new vehicles.”

Vehicle manufacturers and retailers, including Volkswagen SA and Toyota SA, have indicated that the emissions tax will be passed on to consumers.

While the tax will influence the type of vehicle that organisations purchase in the future, the effective increase in a vehicle’s total cost of ownership may be negligible because a vehicle’s purchase price is only a portion of TCO, says Young.

“In future, companies will have to apply their minds when drawing up vehicle specification sheets to ensure that they don’t over-spec vehicles, thereby unnecessarily pushing up fleet costs. This is particularly true when it comes to ensuring that light delivery vehicles are fit for purpose; they must have the capacity to perform at a level that keeps their TCO to a minimum.”

All new passenger vehicles will be taxed based on their certified carbon dioxide (CO2) emissions at R75 per g/km for each g/km above 120 g/km. The tax will range from 0.6% to 4.1%, depending on how much carbon a vehicle emits. This tax favours the use of vehicles with smaller engines that are more fuel-efficient and which emit less CO2. It is estimated that the tax could, for example, increase the retail price of a 1.3 litre sedan by roughly R1 500, while a petrol-based V8 4x4 sports utility vehicle could carry an additional charge of around R20 500.

The intent of the tax is to influence the composition of South Africa’s vehicle fleet to become more energy efficient and environmentally friendly, says Young.

However, the market segment on which this tax will exert itself most, executive vehicles with large capacity engines, is the sector of the market that can afford to and will pay the tax to get the luxury vehicle wanted. The probable result is that little will change in terms of private market buying patterns except that vehicles will become more expensive,” concludes Young.

For more information on fleet management issues contact Ashleigh Young of TransAuto Group at ashleigh@transauto.co.za.

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