The adjustment of the graduated formula for ad valorem excise duty on new motor vehicles, which was announced by Finance Minister Trevor Manuel yesterday, could help the automotive industry to soften price increases.

The adjustment of the graduated formula for ad valorem excise duty on new motor vehicles, which was announced by Finance Minister Trevor Manuel yesterday, could help the automotive industry to soften price increases.

Most stakeholders in the South African automotive industry also welcomed the fact that fringe benefit taxation on motor vehicles had not been reviewed.

In presenting his Budget speech in Parliament on Wednesday, Manuel said the formula would be adjusted to address the inflationary element and would cost the fiscus about R243 million in revenue foregone next year.

"This formula draws a distinction between vehicle types and the weight of vehicles, translating into a more moderate excise duty charge on lower priced cars," Manuel was quoted as saying.

Several commentators, including National Association of Automobile Manufacturers of SA (Naamsa) president Ian Robertson and Duane Newman, Deloitte & Touche's motor industry group leader, believed the ad valorem excise duty adjustment would “effectively make cheaper cars cheaper,” Business Report said.

Newman noted that the widely-expected changes to the taxation of car allowances were not included in the budget.

Ian Robertson, who is also the managing director of BMW South Africa, said this was probably indicative of the fact that company car and car allowance taxation remained at high levels by international standards.

Robertson added that the relief proposed in respect of ad valorem excise duty on new motor vehicles “would partially address the inflationary, fiscal drag provisions in the graduated formula”.

Because of vehicle price increases last year, the revenue from ad valorem on new motor vehicles was significantly higher than what the SA Revenue Service expected.

He said the estimated extent of the relief would assist the industry in exercising price restraint. “Effectively, what the minister is doing is handing some of that back," Robertson said.

The detail on how the R243 million would be handed back still had to be worked out, he said, but it would "help offset some pricing pressures and be good for consumers"

Tony Twine, a motor industry analyst and director of Econometrix, said the individual "tax handbacks" were probably the most important element of the budget for the motor industry, “because it was far more sensitive to changes in disposable income than to changes in price”.

Twine said the ad valorem excise duty adjustment was unlikely to make a big difference and would mean a lot to consumers.

"The R243 million is equivalent to about 0,5 per cent of value of new cars sold in 2002," he said. The benefit was "hostage" to the improved margin being passed on by manufacturers to consumers.

"It's unlikely to translate into fancy new vehicle prices but will increase the room buyers have to trade within to get discounts."