Bigger isn’t always better – Carbon tax: A 21st century plague

CHAPTER 1

1.1. Introduction

It is arguable that South Africa’s stance on the late implementation of emission tax as a tool of carbon tax is based on international pressure to exhibit economic growth and environmental leadership.

The introduction of a division of Pigovian tax in the economy is an attempt made to rectify the issues that greenhouse gas emissions pose. Existing as a regressive tax, carbon tax affects all income groups irrespective if their vehicle is new or old. Implemented by reviewing the approach to license fees within each province, the carbon tax was initially limited to only passenger vehicles, then soon followed on to commercial vehicles as promised in the 2010 national budget, before being fully stretched to all vehicles in 2015 as per 2014 national budget.

This study will focus on the carbon tax and the manner in which it affects vehicle sales within the Durban region. The spotlight in this chapter will be directed at the style, in which the tax was introduced, the objectives of the tax and evaluating the repercussions it has on consumers of new vehicles.

1.2. Problem Statement

The evidently stressed motor industry is confronted with yet another dilemma, the carbon tax. Indirectly, consumers absorb the majority of the costs to this tax.

Gagne (2013: A11) reiterates that there has been much media excitement on the introduction of this tax, with an indication that the cost of new passenger vehicles will increase by 2% as a result of the tax. The proportion by which the price of a vehicle may rise is completely reliant on its carbon emissions, in addition to the sale price of the vehicle making it a trial to both the motor and fuel industries.

This carbon tax regulation initially was applicable to new passenger vehicles, but will now be comprehensively covered to consist of light commercial vehicles. However, light delivery vehicles are exempt. The problem is that these vehicles are never tested for CO2 emissions, so there is no data to base the tax on light delivery vehicles. Evidence suggests that South Africa is the only Republic to announce carbon on light commercial vehicles.

Dieter (2005: 173-179) suggests that it is therefore hinted that this tax regulation has been introduced to encourage road users to purchase more compact and fuel-efficient vehicles. The contrary effect on this is that consumers now resist the purchasing of new cars, creating a “Corolla” sized family fit into a “Yaris” sized vehicle. The carbon tax imposed on vehicles is clearly a once-off payment, but the amount is so substantial that one could experience difficulty in obtaining finance for such a vehicle.

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1.3. Background

The development and implementation of our particular carbon tax are noted by Finnern (2011: 26) as the tax that which is levied currently only on the sale of new passenger vehicles. Essentially, this equates to, for every litre of fuel cars burn to move one kilometre, a certain amount of CO2 is dispersed through the exhaust, into our clean atmosphere. The rate of emission is a little lower for diesel than for petrol. The results for every gram over 120g/km that your new vehicle exhales, you will be charged R75. The subsequent figure results to, is also subject to VAT. It doesn’t appear to be like a mammoth amount, but the real travesty is the minuscule quantity of cars that actually fall under that threshold. With this submitted rate of R75 per g/km, a vehicle will draw the carbon tax of nearby R6000.

What the above mentioned proposes is that the selling amount will increase by an amount greater than the carbon tax divulges, as the tax will be unseen to the unsuspecting buyer, overcoming any possible attempt to inform vehicle buyers as to the vehicle’s emission levels. The truth is that the consumer is duped as manufacturers, gather costs from their dealers; and these dealers must recuperate their costs from the blindsided consumer. Cokayne (2012: 16) reports that the consumer would be expected to compensate R15 000 to R16 000 additionally on to their selling price if they’re purchasing a vehicle that has a large and potent engine. Unfortunately, within the economy, vehicle sales have declined in comparison to previous years. Noticeably, there will be an impact on employment as a supplementary tax burden will be experienced about R2, 5 billion on buyers will weaken sales, therefore, affecting the automobile segment and its component business industries.

Touching on vehicles that have higher fuel consumption, the pricing with its tax effect will possibly be up to a 6% increase for these vehicles. This tax is characteristically unfair in that it punishes all motorists who purchase a new vehicle within the same class. To put this in context, if two motorists bought the same car, but one of them drives 10 000km per year, and the other would drive 30 000km per year, it is clear that second motorist burps out more CO2 exponentially, but both owners of the vehicles are taxed in equal proportion. The current carbon tax implementation yields, tax figures of about R1, 6 billion annually, regarding new vehicles. A surplus of R800 million in taxes from light commercial vehicles is also anticipated.

Droppa (2010: 6) suggests South Africa currently holds more or less all new cars under its unique taxable threshold of 120g/km CO2, excluding one or two models. From which, if you’re able to pay for a new vehicle, the exempted vehicle isn’t exactly the most desirable of cars since almost all of them have engines below 1.3 litres. The motive behind the limited choice is due to poor international standards of petroleum manufacturing locally.

The quality within South Africa’s available fuel barely accomplishes international standards. Currently, resident low-sulphur diesel consists of 0.005% which is 50 parts per million sulphur, however, within Europe, 10 parts per million is reflected as filthy. The resident formed petrol is also very emission hostile, meeting a standard of Euro 3, whilst contemporary and competent engines were evaluated to be using Euro 4, Euro 5 or Euro 6

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standard petrol, avoiding these type of vehicles from being supplied into South African borders.

1.4. Aims and Objectives

Aims

The introduction of this carbon based tax has been established for reducing carbon emissions via the transport sector, a sector which is pivotal in greenhouse house gases (GHG). This research reflects the application and development of the influence on a vehicle tax policy that calibrates vehicle sales and its carbon footprint on a vehicle choice. With the aim of providing an insight into the effect of new vehicle sales will experience due to carbon tax, this paper seeks to detail the results of such a tax regime.

Objectives

1. To offer a literature review on the relationship between carbon tax and vehicle sales in Durban.

2. To conduct an empirical survey on the relationship between carbon tax and vehicle sales in Durban.

3. To offer recommendation on the relationship between carbon tax and vehicle sales in Durban.

1.5. Significance of the Study

This research reviews what our perception is on the harmful effects of vehicles and its use thereof and assesses the policies available to manage those effects. By measuring external costs associated with vehicle purchasing within the Durban area, the adopted approach of carbon tax is then analysed as to how vehicle sales are influenced. Attention is given to motorists and vehicle dealerships so that their responses indicate how well they adapt to attaining/disposing, owning and operating vehicles. Examination is then conducted to the adverse effect on carbon tax implementation on vehicles, thereafter exploring policies that may resolve these issues.

Through this research, the following may deem this beneficial:

Motorists and aspiring motorists Fellow students Vehicle manufacturers and dealerships Environmentalists

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1.6. Limitations and Delimitations

Limitations

Cokayne (2012: 3) promotes a definition of limitations that are specific influences beyond the researcher’s control. Mainly conditions and shortcomings render control impossible over research. The following are limitations in this study:

Limited access to applicable information Contributions from external sources equipped with guidance and support such as

individuals within the researching industry will prove to be difficult as many should have other commitments

Elaborating on certain aspects within this study branches of into other areas of study Reliability of verified data collected from internet sources deferred in many ways and

appeared outdated

Delimitation

Delimitations ideally define all parameters within the study and are identified as the researcher’s choices which should be mentioned. The following are delimitations in this study:

This study is confined to a specific geographical area, which is Durban. Therefore, the findings of this study can not be generalised to areas that reside outside the Durban region.

Subjects must have possession of a new vehicle Subjects ought to have purchased a vehicle post 2010 in order to have been exposed

to carbon tax Information extracted is relevant to the study Management of time and resources available proves vital in this study Many research platforms are utilised such as experts in the relative fields of tax and

motoring, databases, surveys, etc.

1.7. Conclusion

Motor vehicles play a noticeable role in Durban, offering convenience mobility, more and more Durbanites are opting for new vehicles. However, with the increase in demand, comes the increase in air pollution, not forgetting congestion on roads.

The introduction of carbon tax has been opposed for a long period and is seen by many as a personalised penalty for atmospheric pollution. Reducing carbon emissions has always been a timely consideration from the government’s perspective. In the same way, the initiation of carbon tax is gradually being used as a method of bidding on the discovery a long term solution that assists with sinking carbon dioxide and other destructive vapours being released from vehicles. The sway of this strategy has a noteworthy and opposite impact for the motor

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industry, especially in Durban where leading manufacturers and sale agents. This tax regime discourages buyers to go for a new and environmentally friendly vehicle. The other major concern to the vehicle sales are that the reduced quality of substandard petroleum which renders the importation or manufacturing of vehicles in South Africa, almost impossible to meet the threshold of 120 g/km.

The levying of a carbon tax on motor vehicles results in double taxation since South Africa levies a vehicle emission tax fashioned on the theoretical carbon emissions of fuel burnt by a vehicle over its useful life. It’s therefore inappropriate to levy an added carbon tax on the actual emissions by the vehicle. In chapter 2 of this study, an informed description and critical analysis of carbon tax and vehicle sales will be considered.

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CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction

The recent global recession that rocked the world put enormous pressure on several

organisations; the automotive industry is not an exception. In a bid to get back on its feet, and

with a desire to increase sales and maximise profit, there is immense pressure on the

automotive industry to increase the prices of new vehicles whilst obligated to include carbon

tax on these vehicles. This is in due consideration of the fact that the motor industry is only

just emerging from a global recession.

The main thrust of this chapter is to provide a detailed review of literatures that provide

answers to the objectives put forward in chapter one. Suffice to add that the objectives of this

study are:

1. To offer a literature review on the relationship between carbon tax and vehicle sales in Durban.

2. To conduct an empirical survey on the relationship between carbon tax and vehicle sales in Durban.

3. To offer recommendation on the relationship between carbon tax and vehicle sales in Durban.

2.2. Literature Review

2.2.1 The carbon tax debate

The carbon tax policy followed a torturous route; according to the South African National

Treasury (2009), the law has its origins in a 2004 where non fuel efficient vehicles such as

4x4’s were bid on from the former Department of Minerals and Energy to be taxed. This

principle was designed to motivate the use of fuel efficient vehicles by taxing vehicles with a

high engine capacity. Adopted from the 2009 budget, the (former) Minister of Finance,

Trevor Manuel announced an ad valorem tax on vehicles which contain a high CO2

emissions element. This was amended in the 2010 Budget where it was then settled that the

application of the proposed CO2 vehicle emissions tax would be reformed into a specific tax.

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There are a lot of disturbed, annoyed and confused industry players out there. A number of

problems with the proposed tax have been identified.

Billy (2010: 10) aired his frustration at the then proposal by saying that the tax would not

achieve its objectives upon due consideration of the fact that sales of new vehicles dropped in

2009, even lower than its previous years. Supplementing Billy’s views, National Association

of Automobile Manufacturers of South Africa (NAAMSA) (2013: 55) stated in comments on

the impending tax that the carbon tax system will negatively influence the vehicle industry,

therefore rendering itself useless in obtaining the objectives of South Africa’s industrial

policy. The reason the tax is not logical is if manufacturers are able to absorb its cost in the

interests of maintaining consumer loyalty by not passing it on to the consumer, the tax will

then not achieve its stated aim.

Correspondingly, it is a mistake to include the tax at the point of production or the point of

importation because if the amount is not applied at the point of sale, it will not be visible to

the customer since it will be part of the selling price, and will defeat the intended objective.

Recorded was the National Treasury (2009) recommending it to be ethically correct for

dealers to reveal on their invoices to customers the CO2 discharges of every purchased

vehicle and the assessed aggregate CO2 emissions taxation on their purchase.

Clearly, a major effect of this prescribed policy could be that of encouraging people to stick

to second hand cars. In its present form, implementation of the new tax regime is

discriminatory because it is designed to drive consumers to the second hand market which

dominates older vehicles that are less fuel efficient than new ones.

This law will mean that only 12 within a base of 20 pre-owned and new vehicles for the

option of purchase in Durban today can avoid this supplementary tax. This factor plays a

significant role in the Durban market whereby to reduce demand, but not toward greener

options. If the consumers of motor vehicles, double cabs and small bakkies identify the fact

that they are being charged extra because of the emission levels of their engine, is it possible

that they have a realistic choice of vehicle to turn to? Even if consumers wanted to, not all of

those who would theoretically change to a greener option can.

Pillay and Buys (2013: 1751) assert that global vehicle manufacturers BMW produce a

variety of its 5 Series classed vehicles in Europe. Focussing on the 2l 5 Series (520d), it

actually releases 109 g/km. Our fuel quality is so terrible that BMW in Europe have to

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amend the engine to accommodate this fuel in South Africa. This modification adds R2 394

to the original price of the car in consideration of the new tax. Similarly, Melanie (2010: 11)

states, South Africa actually is the sole jurisdiction introducing a green tax without allowing

motorists the option of switching to cleaner vehicles – and the irony is that some of those cars

are made in the country. The Industry cannot introduce the desired models of engines because

the fuel available does not allow it.

According to NAAMSA (2013: 52), due to the unavailability of Euro 4/Euro 5 enabling fuel

in South Africa, vehicle producers and importers are prevented in offering the most recent

and fuel efficient products to the South African market. In the same vein, Botha (2014: 16) is

of the opinion that that there is simultaneous ongoing work from government on improving

fuel specifications. He further states that although lead based fuel was ousted some time ago,

consideration must be made to deal with other present impurities in our petrol and diesel.

The vehicle carbon emissions tax could also expedite the introduction of further improved

fuel standards. While Botha’s views may be tenable, the fact remains that the current fuel

standards do not support the intentions of the carbon tax. So even if the consumer decides to

elect a low emission vehicle on account of the extra cost of “gas guzzlers” he would be

limited to a very small range. That will limit the tax’s effectiveness.

Ideally, the same logic is applicable across all vehicle types because it is the fuel available

that is the issue. There is ample debate in progress upon the successful implementation of

this tax that is assisting government achieve its green policy goals. Lester (2014: 2)

confirms suspicion in government’s commitment to initialise this carbon tax fully by the cut-

off date January 2015.

There is evidence in the failure of commentary to respond to questions on the carbon tax and

its merit. Only partial answers to basic questions like – why South Africans ought to care

about the carbon tax and its implementation, how is the determination of the carbon tax

formulated currently and the repercussions to consumers.

2.2.2 Carbon tax explored

Before delving further into the literature review, it is important to explain the concept of

carbon taxing. Goldblatt (2010: 512-517) defines this tax as the price that is imposed on

carbon through taxation. The overall principle aims at reducing emissions and greenhouse

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gasses while creating the efficiency of resources by penalising motorists that emit more

carbon.

How will the proposed tax work?

According to Mahlia, Tohno and Tezuka (2013: 20-33), the proposal to tax emissions is

based primarily on the threshold via a given percentage. A further recommendation on the

taxation is that it increases over periods to further discourage the participation of carbon

polluting. This proposal on paper has been identified to be phased in completely over all

vehicles in a five-year period from 2015 to 2020.

The effect it has on businesses and the economy will be determined by the design of the tax

itself and of course on the way it is implemented.

Vehicle Emissions Tax Just Another Tax or a Win For The Environment?

One can argue that the main thrust of the tax is to protect the environment. If that is the case,

then one can safely say it is a victory for the environment and environmentalists. Given that

the purpose of the vehicle emissions tax is to attempt a reduction in CO2 emissions by

influencing consumer purchasing decisions (encouraging the purchase of lower CO2-emitting

vehicles), it is safe to assert that if well implemented, the tax could make South Africa a

model nation in the fight against environmental pollution.

Alluding to the above position, Devarajan, Robinson and Thierfelder (2011: 56-60) state that

should the implementation of this strategy be successful, South Africa and Africa as a whole

will impact the global society, by compromising on the stereotype that Africans are subjected

to their 3rd world status.

Since its introduction, commentary targets on questioning how exactly this tax will decrease

vehicle emissions but not yet weighed difficulty of isolating the effect the introduction of the

tax has on reducing CO2 emissions.

Furthermore, the vehicle emissions tax might be perceived as just another tax which could

affect the prospect of it reducing CO2 emissions. Considering that the design of the vehicle

is the basis for the emissions tax. Pillay and Buys (2013: 1755) assert that the design of the

vehicle emissions tax refers to the following:

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•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 this tax reducing actual CO2

vehicle emissions.

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 carbon emissions.

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 given the

prices of fuel, 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 tax is levied. Taxes assessed based

directly on CO2 emissions are likely to have the highest possible impact on reducing most of

the CO2 emitted from vehicles. 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” (Pillay and Buys 2013: 1759-1761). The ideal

regime would be to have a mixture of the different taxes to obtain the maximum reduction in

CO2 emissions. This indicates room for expanding current taxes/levies on vehicles in locally

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 affect negatively on the way

consumers perceive the tax to be implemented. Robbie (2013: 28) affirms on this statement

by concluding that customers purchasing new vehicles could only see this tax as a tool for

government to generate income, therefore will not consider the benefits of reducing CO2

gasses emitted from vehicles.

In addition, this carbon tax imposed on new vehicle purchases 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

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focus away from consumers. “A feebate policy consists of additional taxes which are levied

and consequently allocated as incentive” (Rudie and Johann 2013: 551). From the foregoing,

Rudie and Johann, recommend that the carbon tax recovered should be earmarked and

allocated to manufacturers of vehicles to invest in fuel economy technology in order to

incentivise themselves.

The focus on consumers might negatively affect the prospects of vehicle purchases in Durban

based retailers, as consumers might not fully value the benefit of reducing CO2 emissions

and merely perceive it as just another tax. Implementing a feebate 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

When government introduced the carbon taxation on vehicles, it was no doubt a step in the

right direction. “The deductibility of the incurred carbon 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 and

Nienaber 2011: 164). The incentive of a tax deduction could counteract the intended

disincentive of vehicle emissions tax.

That said; if the government’s initiative to implement the vehicle carbon tax succeeds in the

achievement of obtaining consumer awareness with regards to pollution from vehicle

emissions, it may have been well conquered. The creation of awareness could let vehicle

purchasers be responsible for their independent actions and contribute to a change in attitudes

so that their environmental impact from their choice in vehicle is considered, resulting in a

win for the environment.

The ideas fuelling the introduction of carbon tax

Vorster, Winkler and Jooste (2011: 244-248) confirm that the main idea for introducing a

carbon tax on vehicles is primarily to revolutionise behaviour patterns of vehicle owners for

the current and future years, rather than to raise revenue. This tax is based on a “Polluter

pays principle.” The tax begins at a low price on carbon emissions; it then gradually peaks

year after year. On that statement, it enables manufacturers and role players’ adequate time

to consider investment in future green technologies.

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The carbon tax rate itself

All costs in connection with emissions of greenhouse gasses are internalised through

adjustment of prices so that it mirrors the intended social prices of goods that are carbon

intensive. To be an effective tax it ought to have a broad tax base to cover as many sectors as

practically possible.

The tax rate to be effective will range between R12.00 and R48.00 per ton, after any relief

and the tax free threshold is considered; as articulated by Goldblatt (2010: 517).

How are retailers affected?

Companies related to vehicle manufacturing and retailing within South Africa may be

economically pushed back from this carbon tax, this could block any progress in the

commercial and industrial vehicle sectors.

Rudie and Johann (2013: 551) hint that the main concern for retailers is international

competition, specifically those that have not yet priced carbon. What this entails is that the

ability to permit a percentage of the tax to partnering business customers or customers in

general is limited.

It is possible that retailers who provide only low-carbon vehicles may be beneficiaries.

According to Lester (2014: 4), the use of energy carbon footprint left by vehicles is what

measurement should be based upon and the risk associated therein. If Lester’s suggestion is

utilised, it could possibly help identify opportunities in the reduction of carbon through cost

effective targeting. The reflection of a well-positioned company in the Durban market will

be its ability to show good carbon management and monitoring of its impact.

What does it mean for consumers?

In essence a person purchasing a new vehicle is compelled to spend more than budgeted since

a tax on the emissions of carbon is brought forward by government, to ensure the country

practices what it preaches in G20 summits regarding environmental conservation.

Anonymous (2010: 5) labels South Africans as possibly one of the biggest CO2 emitters in

the world, resulting from fuel combustion.

Vehicles with cleaner engines (emit less CO2) will be favoured for sale. One general

consideration to be mentioned is that for a vehicle to attract less tax on emissions, it should

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have a smaller engine. Pillay and Buys (2013: 1760) illustrate an example of that which a

normal and new 1.3 sedan will have a price increase of around R1500, yet a vehicle with a

V8 engine charms a higher price of R19000+ on the original cost.

It is possible no tax is eligible on certain vehicles; this is since these vehicles regurgitate

120g/km and less CO2. Realistically, in the South African market, no car has yet to reach

this standard.

The motoring industry and government are still negotiating the emission levels taxable on

trucks and commercial vehicles, they are currently exempt.

What happened upon pre-introduction of this carbon tax?

NAAMSA (2013) has reported that consumers practiced a buy-ahead approach so that

emissions tax is avoided, as of late September.

Robbie (2013: 28) deduced that during the buy ahead approach, retailers increased vehicle

prices from 2% to 3% so they too could take advantage of the market.

Lester (2014: 2-4) explained that the trend of used vehicle buying has increased since the

incorporation of this carbon tax. Lester further acknowledged that from September 2010, a

ratio of 1.54 to 1 (used vehicles to new) increased in three years at a record 3.21 to 1.

His judgement is due to additional charges imposed on new vehicles in comparison to a

decrease of prices in quality pre-owned vehicles.

2.3 Conclusion

Some may see the formulation of this carbon tax on new vehicles as punishment for harming

the environment.

Decreasing carbon footprints has been a long term goal of the country; similarly, a solution

for addressing this occurrence is gradually being sewn into the legislation of South Africa as

a long term objective. Positively, the carbon taxation of vehicles is a step in reducing

harmful gas emissions, however, on the contrary it is slated since it is thought to increase new

vehicle prices greatly and therefore reduce the appeal to purchase new vehicles. Durban is

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well on par with national objectives in being environmentally considerate even though plans

are being undertaken in a long term nature to satisfy national and international communities.

Durban may only be commended on its stance to valuably contribute to the eradication of

carbon foot-printing and halting the best way it can, the effects of global warming.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Introduction:

“We all possess the vital instinct of inquisitiveness for, when the unknown confronts us, we wonder and our inquisitiveness makes us probe and full and fuller understanding of the unknown. This inquisitiveness is the mother of all understanding and the method, which man employs for obtaining the knowledge for whatever the unknown can be termed as research” Kothari 2004: 1).

The research is seen as an academic activity. The academic activity always has a sole purpose of discovery.

In research methodology, fundamental principles and distinctions between definitions need to be addressed in order for the reader to understand and broaden his abilities in this phase. The objective is to define and highlight the methods used after explanations have been supplied.

Research methodology is the foundation of any research task and is easily reputed as the building blocks of any research.

3.2. Study type

3.2.1 Quantitative

“Quantitative research has a reputation for involving large scale sets of data and projected as the gathering of facts” (Mishra 2008: 21).

3.2.2. Qualitative

“Qualitative research in contradiction is done by the collection and analysis of information in many different non-numerical forms” (Blaxter, Hughes and Tight 2010: 65).

3.2.3. Cross-Sectional

Dhawan (2010: 1) suggests cross-sectional studying accumulates information on a target population at a point in time.

3.2.4. Longitudinal

Longitudinal studying in contrast is data gathered through your population over a long period (Lee 2013: 41)

3.2.5. Descriptive

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Descriptive research reflects accurately the characteristics of a particular individual, situation or group (Dhawan 2010: 2).

3.2.6. Survey

Survey research constitutes of structured questions to assess a population.

This assignment will be quantitative in nature with cross-sectional and descriptive studying being maintained.

3.3. Sample techniques

Sampling is a process involving the selection of units (example people and entities), from a sample population of our interest. This in return enables us to generalise in a fair manner. According to Mishra (2008: 46), the sampling selection process requires the form of the sample to be specified.

3.3.1. Probability

Probability sampling uses any form of random selection. Generalizability is the distinguishing figure as this results in the drafting of conclusions from the population. “Quantitative research aspires to the gold standard of generalizability” (Higginbottom 2004: 7).

3.3.2. Non-probability

Non-probability sampling is, “The data cannot be generalised to any population because the sample is not representative of any population” (Lee 2013: 121). This does however mean that samples can not depend entirely on the rationale of probability theory. It also established that sample sizing is conducted by a desire to investigate the topic fully with rich information.

The non-probability sampling will be utilised in this research.

3.4. Sample selection

3.4.1. Judgemental

Judgemental sampling according to Laws, Harper and Hughes (2003: 16) is when the researcher chooses respondents with the view of obtaining a wide representation of respondents, bearing in mind their differences of opinions.

3.4.2. Convenience

Convenience sample is taken from whoever happens to be around, there is no generalisation.

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The convenience sample selection will be used in this research.

3.5. Sample size

3.5.1. Sample

On the basis of research, a sample is as defined by Shapiro (2008: 777), as a subset of elements drawn from a population. Should these mentioned elements be sampled for measurement, then a census is being conducted?

3.5.2. Population

Population is a term described as the universe of units of analysis, example individuals, which a researcher comes to a conclusion.

The sample size within this research will be consisting of 20 respondents.

3.6. Questionnaire design

Questionnaires are research instruments that comprise of a series of questions with the objective of acquiring information solely from the respondents. Question designs are based on measurement scales, which simply categorise variables.

3.6.1. Nominal

Nominal scales label variables without any quantitative value and are mutually exclusive. A simple example of this would be enquiring about an individual’s gender.

3.6.2. Ratio

Ratio scales provide endless possibilities when it comes to statistical analysis since they directly tell us about the order and value between units and allows for a wide range of statistics to be applied. An easy example would be asking for height and weight in a questionnaire.

3.6.3. Ordinal/ Ranking

Ordinal scales are usually measuring the order of the values significant to the respondent but measures non-numeric concepts (how much better can not be quantified). An example of ordinal scales would be to list what characteristics of the opposite sex is appealing to you.

3.6.4. Interval/ Likert Scale

Interval scales are numerical as we know not only our preferential order, but the differences between values. To ellaborate further on the previous example, we could perhaps list these qualities in descending order. In this research, question 4 of the questionnaire will comprise of an interval question.

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All four measurement scales will be used in the questionnaire of this research.

3.7. Questionnaire administration

The questionnaire administration is often partnered with quantitative research as it emphasises factual data.

3.7.1. Face to Face

The face-to-face administration is as it’s termed, the researcher issues the questionnaire and asks questions as the respondents fill in the answers. This minimises error and guides respondents to giving useful information.

3.7.2. Drop off and pick up

The drop and pick up method allows respondents to use their discretion in answering, is thus suitable for questions requiring a high level of facts. According to Lavrakas, (2008: 122-124) the main disadvantage is that it has a low response rate therefore follow-ups are required.

3.7.3. Group

The group method is self-explanatory; respondents are interviewed as a group to speed up the data collection.

The administration process of questionnaires will be done in a drop and pick up method.

3.8. Data analysis

Analysing data can be complicated, thus specific methods are used to gather and interpret data into useful information.

3.8.1. Descriptive

The descriptive method of data analysis computes measures of central tendency. It assists the researcher to summarise the nature of the research variables by displaying it through visual aids. Inferential analysis targets the testing hypotheses.

Pie chart

A diagram spherical in nature, segregated into sections which characterises some type of quantity.

Bar Graph

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This graph is drawn with rectangle bars depicting the quantity of each value.

Table

Visual aids containing composed data on a worksheet of rows and columns.

3.8.2. Inferential

Inferential analysis helps the researcher in choosing between alternative courses of action from his gained data, (van den Besselaar 2003: 1077)

Descriptive data analysis will be used in this research along with pie charts, bar graphs and tables.

3.9. Reliability and validity

3.9.1. Reliability

Reliability represents the extent to which an assessment instrument provides consistent and stable results. Types of reliability include:

Internal consistency : effectively evaluates the extent to which diverse test items inquire the equivalent construct, resulting in identical outcomes

Test-retest: a group of individuals are issued the same questionnaire twice in groups. Stability is checked when the answers are correlated from both tests

Inter-rater : the extent to which different respondents are in agreement in their answers

Parallel forms : different versions of the same assessment tool are given to sample population

3.9.2. Validity

Validity considers the results of the test measures, how well did it achieve its intended responses. Types of validity include:

Face : confirmation is achieved when the measure is assessing its intended purpose Formative : assesses how well the responses are and if they can benefit the research Construct : the measure utilised is actually measuring what it is meant to measure

from respondents Criterion-related : assists researcher to predict current or future performance

This research will be using face validity (alpha co-efficient is not required).

19

3.10. Conclusion

Research methodology is an integral part of any project being undertaken. It is creative and tests all types of legitimacy confirming new or undertaking previously covered research.

The collection of data (research methodology) methodically lays the foundation principles needed to know in order to begin the scholarly undertaking. The topic undertaken is a measuring factor that inclines personal ordinary knowledge, increasing general knowledge of what one would consider as a normal procedure.

Research methodology was broadly covered in this chapter of the study. It meticulously outlined study type, sample techniques, sample selection, questionnaire design, questionnaire administration, data analysis, reliability and validity.

The next chapter will consist of presentation, interpretation and discussion of results.

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CHAPTER FOUR

PRESENTATION, INTERPRETATION AND DISCUSSION OF

RESULTS

4.1. Introduction

Without any sort of gradual introduction into legislation, the sudden implementation of

carbon taxing on new vehicles is seen to have an adverse effect from its objectives. By

discouraging the purchase of new vehicles, through this restrictive measure of taxation,

Durban residents in fact switched to vehicles that are pre-owned but still within the class of

“high engine capacity”, just another loop hole yet again exposed in the tax regime.

4.2. Presentation, interpretation and discussion of results

4.2.1. The pie chart

Pie charts are divided sectors from a circular chart, reflecting necessary magnitudes. The

presented sectors are proportionate to the quantities it reflects.

The composed pie chart is a representation of the percentage of new vehicles as composed to

pre-owned vehicles in use by the respondents.

From question two of the questionnaire, participants indicated by an astonishing 70% that

they have purchased a used vehicle. In comparison, a dismal 30% had responded to

purchasing a new vehicle from a dealership.

The information rendered the point that Lester (2014: 2-4) had shed light on. He deduced

that the trend of used vehicle buying was rising since the fusion of this carbon tax. Lester

supplemented his cause by acknowledging that from September 2010, a ratio of 1.54 to 1

(used vehicles to new) increased in three years at a record 3.21 to 1.

21

70%

30%

Type of vehiclePre-owned New

4.2.2. The bar chart

Bar charts are commonly used for the comparison of two or more values. Here, rectangular

bars are represented with lengths proportionate to their values.

The following bar chart is a representation of the extent in which respondents agree or

disagree to the compered questions within question four of the questionnaire. These

questions were:

Customers are now opting for fuel-efficient vehicles?

Would you still purchase a “high engine capacity” vehicle?

Customers are not aware of the tax levy included in the purchase price?

In response to the first question from question four, majority (eight respondents) agreed that

indeed vehicle enthusiasts, whom are pursuing a new vehicle purchase, are opting for

environmentally friendly vehicles. This does relate to Devarajan, Robinson and Thierfelder

(2011: 56-60) whom state that the successful implementation of this tax, South Africans and

Africa as a whole will break misconceptions of the world which regards Africans as

environmentally disinterested due to their 3rd world status. Tackling the second question

from question four, again majority voted against purchasing vehicles that were classified as

“high engine capacity”, indicating a socially environmental consciousness existing amongst

22

Durban vehicle owners. Clearly defined by Goldblatt (2010: 512-517) as a tax on the price

that is imposed on carbon through taxation. He further asserted that the overall principle is

aimed at reducing emissions and greenhouse gasses while creating the efficiency of resources

by penalising motorists that emit more carbon. On the contrary, Pillay and Buys (2013:

1755) are backed by respondents when they correctly asserted that 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 carbon emissions. Astonishingly, evidence

indicates from question three, of question four that customers are oblivious to the carbon tax

levy imposed on new vehicle purchases – twelve of twenty respondents agreed so. Robbie

(2013: 28) affirms on this result whereby he concluded that customers purchasing new

vehicles could only see this tax as a tool for government to generate income therefore will not

consider the benefits of reducing CO2 gasses emitted from vehicles, neither would it be made

consumer branded.

Question 1 Question 2 Question 30

2

4

6

8

10

12

Extent of agree/disgree

Strongly Agree Agree Neutral Disagree Strongly Disagree

23

4.2.3. The table

A table depicts information through a series of bars representing data collected.

The table below depicts the reactions from twenty independent respondents to question three

of the questionnaire. Ranking from one as most favourable, right up till five as least

favourable, the following sub-questions were asked to be assigned a number:

Legislation adequately informs the customer of tax impact on vehicles?

Customers should be environmentally friendly in their vehicle choice?

Dealerships should do more to make consumers aware of this tax?

This tax should compensate for other factors such as fuel quality?

Manufacturers should absorb the cost on new vehicles, not consumer?

For sub-question one from question three, it is safely conclusive that most of the respondents

had little or no regard for the public awareness of the carbon tax regime as the total of the

respondents assigned a three or higher to the question. Sub-question two saw majority of the

responses between ranking one and three, thus signifying customers should show compassion

to greener vehicle alternatives. Vorster, Winkler and Jooste (2011: 244-248) confirm that the

main idea for introducing a carbon tax on vehicles is primarily to revolutionise behaviour

patterns of vehicle owners for the current and future years, rather than to raise revenue.

Succeeding that question, Durbanites affirmed whole-heartedly that they believe dealerships

should do more to publicise the taxation on consumer vehicle preferences, increasing their

understanding of their choices and the associated costs. Fourteen respondents ranked this

between one and three. Ranked between three and four were fourteen respondents, majority,

who aired their frustrations at sub-question four. Nel and Nienaber (2011: 164) delude that

the incentive of a tax deduction could counteract the intended disincentive of vehicle

emissions tax. Clearly many respondents are of the opinion that this tax should now allow

for better importation and manufacturing of better fuel at the lowest available prices.

Reported by Lester (2014: 4), the use of energy carbon footprint left by vehicles is what

measurement should be based upon and the risk associated therein. Outshining the previous

questions was sub-question five, twelve respondents ranked this one and two in aggregate.

Fairly deductive that many within Durban are fuming that that should cough up surplus

charges on an already financial burdening issue of vehicle purchasing. Rudie and Johann

24

(2013: 551) hint that the main concern for retailers is international competition, specifically

those that have not yet priced carbon.

Ranking of importance

1 2 3 4 5

Question one 0 0 6 6 8

Question two 4 6 4 0 6

Question three 2 10 4 4 0

Question four 4 2 6 8 0

Question five 10 2 0 2 6

4.3. Conclusion

Within the Durban region, many vehicles owners have concluded that carbon taxing on

vehicles is both ambiguous and ought to be further debated in order to substantiate from

discrepancies on why they as owners are neither well informed nor knowledgeable on the

taxing principle.

Nebulously implemented, it appears that the modelling of carbon taxing has been dismal and

inefficient in achieving the desired of objective since its implementation. As evidently

additional taxes supplement to the total increased vehicle sales prices, one can only ponder on

the impact that could be experienced. Perhaps a relapse into a recession? Due to

government’s pledge to commit to the international community to reduce carbon emissions,

seems like a win for national government to increase their tax base but at the wrap of

confused and misinformed individuals.

25

From context, there needs to be much more consideration upon the taxation introduction. No

doubt it’s a leap in a favourable direction, allowing revenue to be generated and reinvested

within infrastructure projects. However, vehicle owners have stood united in their

disgruntled stance of the carbon taxing on new vehicles.

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CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.1. Introduction

Upon introduction of the carbon tax, the effectiveness of reducing carbon emissions has been

questioned but not assessed.

Carbon tax will eventually be needed in South Africa to reduce the nasty effects of vehicle

emissions; however the penalty imposed on your vehicle selection ought to have been

considered, by higher powers, in conjunction with other mitigating factors – ironically still

being considered by government after prematurely introducing this taxation method anyway.

In this chapter, conclusions will be drawn using the literature review and primary findings,

resulting in recommendations being discussed. Furthermore, this chapter will examine if the

aims and objectives of this study were achieved.

Aims

This research reflects the application and development of the influence on a vehicle tax policy that calibrates vehicle sales and its carbon footprint on a vehicle choice. With the aim of providing an insight into the effect of new vehicle sales will experience due to carbon tax, this paper seeks to detail the results of such a tax regime.

Objectives

1. To present a literature review on the relationship between carbon tax and vehicle sales

in Durban.

2. To conduct an empirical analysis on the relationship between carbon tax and vehicle

sales in Durban.

3. To offer recommendation on the relationship between carbon tax and vehicle sales in

Durban.

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5.2. Conclusions

5.2.1. Conclusions from the literature review

The first objective was to present findings on the relationship between carbon tax and vehicle

sales. In disseminating the literature, there were various viewpoints as to whether the carbon

tax rate was fairly implemented and controlled however; the opposing views on this matter

far exceeded those in favour of the carbon tax regime.

The summary of the literature review concluded that the government has reiterated and

emphasised South Africa’s commitment to supporting plans at addressing climate change,

one such factor identified was carbon tax based on vehicle emissions. Despite studies

depicting that the country was not equipped to be introduced into this saga, through various

mitigating factors, implementation commenced nevertheless.

Lester (2014: 2) suggests vehicle emission always concernsthe “green police” as it

compounds on destruction of the environment. Questionable was the response by many

studies since South Africa is still recovering from a recession and is only a developing

country but has taken on the mammoth task of being the first African country to introduce

this tax. Further research communicates to the public the positive attitude adopted by

government due to the G6 Summit and other events South Africa plays host to.

Many debates, literature and commentary have been recorded on the subject matter of carbon

taxing; yet vague is the gist of it all. Failure is inevitable for the general public as debate and

interest seizes. Only when the consumer is forced to cough up for additional expenses does

he/she realise what exactly is going on in the world (provided he/she looks at the invoice).

Compounded by predominantly third world dilemmas, Pillay and Buys (2013: 1750) conjure

that such poor standards of living exist within the borders, high tariffs and unique fuel levies,

the situation remains volatile on the road to success since the assessment base needs to be

adjusted to accommodate the status of South Africans and not to just look pretty on paper.

Therefore the first objective of the study has been satisfied.

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5.2.2. Conclusions from the primary study

The second objective was to conduct an empirical analysis on the relationship between the

carbon tax and vehicle sales in Durban.

This section is focussing on findings from chapter four and formulates conclusions of the

study based on the objectives that were compiled in chapter one. Conclusions from the

primary findings illustrate although the carbon tax was a foot in the right path, South Africans

have been prematurely exposed to such a tax.

According to the respondents, it was clearly indicated by the bar graph that many were even

unaware of such a tax existed, confirming to the literature review. Debate has sparked no

interest due to other suppressing matters dealing with unfair taxation such as road levies and

fuel price hikes.

As much as 70% of the respondents have purchased a new vehicle within the last financial

year. This is further supported by Goldblatt (2010: 513) who insists sales have increased

even through the financial recession and after the introduction of a carbon tax on new vehicle

sales.

It was revealed in the table by the respondents that they did connect to the implementation of

a carbon tax to curb pollution, ensuring consumers take the “environmentally friendly”

choice, but this was submerged deep beneath the fumes when they also voted unanimously

that the manufacturers offering their products should cough up the surplus charge for their

market and that dealerships need to do more to convey the message of being eco-friendly, in

conjunction with Robbie (2013: 26) who hinted the same solution. The prevalent estimate by

respondents is that the carbon tax is a farce and should be ruled out eventually, yet every

single respondent, after being informed this was no hoax of a carbon tax, all agreed that

government did not do enough to grasp the attention of the public.

Therefore the second objective of the study has been satisfied.

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5.3. Recommendations

The third objective was to offer recommendations on the relationship between carbon tax and

vehicle sales in Durban.

Differentiation of tax

For correct implementation of a carbon tax, based on the taxation systems of the handful of

countries imposing such a corrective measure, consideration should be put to incorporating

the emission tax into the annual vehicle license fees. This should be differentiated by each

corresponding vehicle’s emission levels and greater fuel levies– leaving no vehicle

untouched. This spreads to ensure that the tax is fairly distributed to all vehicle owners

whom have the luxury of owning a vehicle. It also encourages the owners to change to more

fuel efficient and greener engines, ridding the roads of dated vehicles that pose a risk to

vehicle safety and environmental protection efforts.

Fuel tax

The South African threshold is much lower than that of the UK (165g/km) and that of France

(155g/km), where there are obvious modern fuel alternatives at their disposal. Arguably, the

tax will be redundant since in the South African climate, as average inflation is between 2%-

4%, unlikely affecting any sought of purchasing decisions made in relation to vehicle sales.

With that in mind, it is also much smaller than our current importation tariff of vehicles that

is grasping consumers. In a nutshell, consumers are obliged to fit the bill (indirectly) for

carbon emissions without even subject to (decent) public transport alternatives. To

contribute to that issue, vehicles that are effectively fuel efficient (only two models fall below

the threshold currently),are not much of a viable option since the most of modern technology

is not accessible – probably not going to be for years. The best temporary solution for this

issue would be a rather harsh but required to endorse the full tax regime; this would be to

modify the fuel tax levy paid directly proportional to the amount that you fill in your tank.

Theoretically it should discourage mileage driven, therefore correcting driver behaviour on

the road.

Threshold variation

A wise choice would have possibly been to manipulate the tax based on improvements to the

fuel industry, however this too late to succumb to. This renders a new alternative, we have a

30

rather high threshold fair enough, though as time surpasses decrease that limit as more fuel

efficient vehicles are on South African shores. It will thus allow vehicle owners to avoid the

tax and display the rectified concerns of fairness by reducing the stigma associated to the tax

revenue driven.

Publicise

The policy was drafted and incorporated without the public being allowed to voice their

opinions. Technically a policy paper is open to interpretation and scrutiny, but our focus in

corrective action – easing the burden of taxpayers. A future policy by right will enable

producers, retailers and consumers take pre-emptive action by adjusting their behaviour. It

will ease the minds of many consumers who felt they were caught out by the surprise

introduction of a carbon tax. South Africans do cry over spilled milk though and in this case

a vaccine for this disaster would now be to make an effort to communicate to all South

Africans considering or is already in the process of purchasing a vehicle, aware of the carbon

tax. Let’s go public! It is surprising that since 2010, not much effort has been drawn to

generate public interest. One can only draw the conclusion that the media and government

are not sensitising the media well enough, or it could indicate that the public only pays

attention to such looming taxes that are consistent with e-tolls. Regardless of any parties true

intentions, the facts are disturbing and the public’s heart will pour out when their wallets are

about to triumphed over tax.

Therefore the third objective of the study has been satisfied.

5.4. Conclusion

There is a deficiency on the elements affecting the carbon tax design, which are rife amongst

ordinary Durban residents. It appears that the taxing regime was imposed on ordinary

residents from all walks of life, in order to satisfy the international community in global

negotiations.

In an epoch when the economy is susceptible to cost-push pressures, the socio-economic

impact on the imposition of carbon tax should have been thoroughly investigated prior to the

development and implementation phases so as to facilitate an easy transition for a greener

lifestyle.

31

From this research, it is clear that people have been given no incentive to neither drive more

fuel efficiently nor drive less. Various organisations and independent commentators regard

this particular taxing regime as a sort of revenue tax masquerading as a carbon tax.

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APPENDIX 1

Information and consent letter

35

26 Cook Place

Malvern

Durban

4093

Dear Participant

Letter of Consent and Information

“Bigger isn’t always better – Carbon tax: A 21st century plague”

I am currently undertaking a research project in partial fulfilment of a Btech Degree in Taxation. The research aims to analyse the effect and implication of imposing a carbon tax on new vehicle sales in the Durban region.

Your assistance in participating in this study would be greatly appreciated and would contribute significantly to research in the motoring industry which is currently struggling to maintain a profitable record in this already challenging environment. If you agree to participate in this research project, the literature will be at the option for your perusal on completion of this study.

Attached is a single paged questionnaire which should take approximately ten minutes to complete. The questionnaire will be collected immediately upon completion. Please note that participation in this study is voluntary. The information provided by you, your identity and individual responses will be kept anonymous and utilised for research purposes only.

Yours sincerely

Seeshin Naidoo

084 783 9025

APPENDIX 2

Questionnaire

36

Mark the appropriate block with a cross

1. Your vehicle type?

New Pre-owned

2. Your economic status?

Higher income class

Middle income class

Middle-lowerincome class

Lower income class

Not willing to disclose

Rank the most favourable question as 1, second as 2 until each of the five factors are ranked

“Carbon tax on vehicles will inevitably fail in South Africa” (Goldblatt 201: 522).

3. Rank Question

Ranking of Importance

1. Legislation adequately informs the customer of tax impact on vehicles?2. Customers should be environmentally friendly in their vehicle choice?3. Dealerships should do more to make consumers aware of this tax?4. This tax should compensate for other factors such as fuel quality?5. Manufacturers should absorb the cost on new vehicles, not consumer?

4. To what extent do you agree or disagree with the following statements:

StronglyAgree

Agree Neutral Disagree

Strongly Disagree

4.1 Customers are now opting for fuel- efficient vehicles.4.2 Would you still purchase a “high engine capacity” vehicle?4.3 Customers are not aware of the tax levy included in the purchase price.

Thank you for your co-operation

37