- Government has NOT solved these ‘EV Fuel’ tax conundrums
- How long will it take for a positive ROI from an EV?
- What is the cheapest way to ‘fill’ an Electric Vehicle
- Should EV’s be allowed to make RAF Claims?
- How government will lose over R300 per tank in taxes
For the uninitiated here is a news flash; “Electric Vehicles run on Electricity and NOT diesel or petrol” and therein lies the rub with our government.
Quite simply put anyone ‘filling up’ their electric vehicle at home from their Solar Panel installation will NOT be paying any form of tax to the Government.
Government applies various taxes and levies to every liter of fuel sold in the country – these taxes vary from 25 to 28.1% depending on the type of fuel being purchased.
The taxes collected by government on fuel are a large portion (approaching one third) of the purchase price per litre.
Our calculations below show that filling up a 60.5 kWh battery size EV attracts from NO tax to R26.34 tax in total per ‘fill up’. Whereas a similar sized Internal Combustion Engine with a 55 liter fuel tank will attract taxes of R348.00 every time you fill up.
The fuel levy has increased by 92% over the past ten years. This levy currently makes up around 5% of the government’s total tax revenue and is the fourth largest revenue item in the government’s budget.
With reference to the price of electricity per kWh we have used the highest tariff for a domestic consumer in Nelson Mandela Bay of R3.12 including VAT for all our calculations.
One of the more affordable EV’s currently avaiable in South Africa is the BYD Atto 3 with a 60.5 kWh Battery and a quoted range of 330km.
So – if you were paying for electricity (not using solar panels) then it would cost R188.76 to ‘fill’ the battery at a cost of 57.2c per kilometer. and Government taxes of R2.18 (Energy Efficiency Tax) plus R24.16 VAT
Alan Straton from BA Systems says; “Whenever we are contracted to install a home EV charger we inevitably get a call a few months later from the proud EV owner who now wants to install a Solar System and further save on ‘filling up’ with a much lower fixed price per kWh. The next driver of renewable energy installations will be a widespread adoption of EV’s in South Africa. Imagine making your own fuel at home and not having to factor in any form of government tax!”
If you were ‘filling’ up using solar then the cost would fluctuate depending on a number of factors – newer solar grid tie only installations are currently at a fixed price of under 70c for the life of the system and you would not be paying VAT or any other tax on your energy leading to a cost of R42.35 to ‘fill’ the battery at a cost of 13c per kilometre.
Contrast the BYD Atto 3 EV with a similar small sized petrol SUV, the Haval Jolion with a 55l fuel tank and around 400km range:
It will cost around R1 383.25 to fill the tank at a cost of R3,45 per kilometre and Government taxes of R348.00 per tank.
In support of our contention that purchasing an EV is an unpatriotic and anrchistic move is the simple fact that the government will be losing out on a huge chunk of tax revenue should we all switch to electric vehicles. In our example the government will ‘lose out’ on R323.84 every time the BYD Atto 3 is ‘filled up’ wth electricity.
Another vexing question not answered by government is; “Should government pay out any RAF claims emanarting from a road accident involving any Electric Vehicle?”
In addition electric vehicles will also not be contributing to the Fuel Levy portion flowing to the metro in which they find themselves.
Government may NOT be adding incentives to encourage the widespread adoption of electric vehicles in recognition of the above.
Let us not forget, though, that the taxes on imported EV’s are disproportionately high and that we actually pay more for our electric cars than the rest of the world, only because they have an incentive structure which we don’t:
Current Taxes Applicable to EV’s:
- 25% import tax on electric cars (in contrast to an 18% import tax on an ICE vehicle)
- 15% VAT
- 40% Ad Valorum Tax – essentially a luxury excise tax that exponentially increases with the price of the vehicle and is calculated according to a formula: {(0.00003 x A) – 0.75}%. In this formula “A” means the recommended retail price, exclusive of value-added tax, less 20%.
The above taxes have to be done on a case by case basis so extremely accurate average figures are difficult to determine. Estimates are that they could be around 42% in total.
So an R800 000 vehicle could represent R336 000 in taxes, which would (using a petrol engined vehicle costing R3.45 per kilometre in fuel as an example) take 97 391 kilometres to recoup.
Obviously we have not factored in maintenance and other cost savings attributable to EV’s so the number could be much lower.
An EV, like a Solar Panel Installation will take a while to give you a decent return on investment. An average person drives 20 000 km per year so in our example above you will take 5 years to recoup the taxes paid when buying an EV.
Effectively, the goverment is collecting 5 years of fuel taxes upfront whenever you import an EV into South Africa. The vexing question is; “What do they do with that money and what will happen when the fuel taxes dry up as we all switch to EV’s?”
A breakdown of the taxes on electricity:
- 15% VAT: Normal Valued Added Tax
- 3.5c per kWh: To support energy efficiency, the government has implemented a levy on electricity generated from non-renewable sources at 3.5 cents per kWh. The levy is paid at source by the electricity producer and recovered in the price charged to the consumer.
A breakdown of the taxes (for 95 Petrol), according to the department, is as follows:
- Fuel levy: 396 cents per litre – Money from the general fuel levy flows into the National Revenue Fund together with revenue from all other taxes. There is a portion of the general fuel levy that is specifically set aside and transferred to South Africa’s eight metropolitan municipalities.
- Road Accident Fund levy: 218 cents per litre – a form of ‘insurance’ used to pay claims eminating from road accidents
- Customs and excise: 4 cents per litre
- Slate levy: 21.92 cents per litre – a self-adjusting mechanism that government uses to deal with daily differences in petrol prices
- Petroleum products levy: 0.33 cents per litre
From 1 May 2024, R6.40 per litre went towards some form of tax or levy when buying petrol – making up around 25.1% of the retail price. Filling a 50-litre tank with 95 octane fuel in May cost R1 274.50— or R1 257.50 for 93 octane. This means you will pay an average of R320 in taxes every time you fill up in South Africa.
The bottom line: EV’s, like Solar Panel installations, take time to reflect a positive Return on Investment but EV’s offer a faster ROI period (around 5 years for a domestic purchaser) than Solar Panel installations (around 7 years for a domestic purchaser). The best ROI is for a commerical purchaser/registered business who has access to depreciation write offs which, in the case of a Solar System, can result in an immediate ROI. Put the two together and EV’s coupled with Solar Systems offer numbers positive enough to excite an accountant like the first time you fell in love.
In South Africa, the consideration of Electric Vehicles (EVs) as an unpatriotic expression of anarchy has sparked debates regarding the country’s energy policies, tax incentives, and environmental concerns. This article delves into the comparisons between the taxes paid per litre of fuel versus per kWh of electricity in the Nelson Mandela Bay Metropolitan Municipality, estimates the Return on Investment (ROI) for private owners versus business owners of EVs and Solar Systems, and explores the reasons behind the government’s reluctance to grant further tax incentives for wider EV adoption.
Comparisons of Taxes: Fuel vs Electricity
In South Africa, the taxes paid per litre of fuel are significantly higher compared to taxes paid per kWh of electricity. This stark contrast in tax rates plays a crucial role in shaping consumer behavior towards vehicle choices.
The current tax structure heavily favors traditional fuel vehicles, making them more financially appealing in the short term compared to EVs.
ROI for Private Owners and Business Owners
For a private owner investing in an EV and Solar System, the ROI is estimated to be approximately 7-10 years. This timeframe is influenced by factors such as electricity rates, solar panel efficiency, and battery life.
On the other hand, for a business owner, the ROI may vary and could potentially be shorter due to potential tax benefits, economies of scale, and the ability to offset costs against profits.
Reasons for Government Reluctance
The South African government’s reluctance to grant further tax incentives to promote the wider adoption of EVs can be attributed to various factors, including:
Budget constraints: Implementing tax incentives requires financial resources that the government may prioritize for other sectors.
Existing revenue streams: Fuel taxes generate substantial revenue for the government, and a shift towards EVs could impact these revenues.
Infrastructure challenges: The transition to EVs requires significant infrastructure investments, which the government may find challenging to fund.
Conclusion
In conclusion, the debate surrounding EVs in South Africa goes beyond just environmental concerns; it delves into economic, social, and political considerations. While EVs offer a cleaner and sustainable alternative to traditional vehicles, the current tax structures, ROI considerations, and government policies present challenges that need to be addressed for a smoother transition towards a greener future. The balance between incentivizing EV adoption and maintaining crucial revenue streams remains a key point of contention that requires thoughtful policy-making and stakeholder engagement.
