'Crucial' 150% incentive for SA electric vehicle producers signed into law
A significant 150% tax incentive for electric and hydrogen-powered vehicle manufacturers was officially signed into law by President Cyril Ramaphosa on Christmas Eve.
While the incentive, which has been widely welcomed by the automotive industry, should bolster local manufacturing, it will only come into effect in 2026.
The amendment made several tax law changes, including the official introduction of a rule allowing vehicle manufacturers to deduct 150% of the cost of any building and new and unused equipment used mainly in producing electric or hydrogen-powered vehicles.
The incentive aims to boost local electric vehicle manufacturing capacity well into the 2030s. It will be in place for a decade and apply to all qualifying equipment and buildings, or additions to equipment and buildings, brought into use for the first time after 1 March 2026 and before 1 March 2036.
The legislation added a caveat to the 150% deduction. If the equipment is not mainly used for EV or hydrogen vehicle manufacturing for at least five years after it was first brought into use, then only 50% of the asset's cost is allowed as a deduction.
The legislation gives effect to the incentive first announced in the 2024 National Budget. In his budget speech, Finance Minister Enoch Godongwana said that he had allocated R964 million over three years to support the country's transition to electric vehicles.
"To encourage production of electric vehicles in South Africa, government will introduce an investment allowance for new investments, beginning 1 March 2026," he said.
Local players in the automotive industry hope the incentive will stimulate the local EV industry.
"[The tax incentive] is a crucial step in attracting investments, fostering innovation, and enhancing the sector's growth within South Africa. The sector has been working towards an electric vehicle stimulation policy for some time," automotive business council, Naamsa, said in a trade manual last year.
In November 2023, the Department of Trade Industry and Competition published a White Paper outlining a roadmap to boost local EV manufacturing capacity to ensure South Africa's automotive industry has a future in a changing energy landscape.
The provisions focus on building local manufacturing capacity rather than incentivising the local adoption of EVs.
At present, local electric vehicle sales are stymied somewhat by a stringent import duty. A 25% import duty is levied when electric vehicles are brought into the country, compared to the 18% duty levied on standard internal combustion engine cars.
In a post on X at the start of 2024, Elon Musk said that "super high" import duties meant that South Africa does not make sense for Tesla, one of the world's leading electric vehicle manufacturers.
In the intervening period, however, Musk has met with senior officials from South Africa, including Ramaphosa, to discuss investment opportunities in the country.
Despite the high import duties, Naamsa statistics show a sharp increase in new electric vehicle sales in South Africa in recent years, albeit from a low base.
A total of 1 079 new electric vehicles were sold in South Africa in the first three quarters of the year, the latest period for which data is available. This is up from 720 electric vehicles sold in the same period last year.
There has been a doubling of new traditional hybrid sales in the same period. Some 9 447 traditional hybrids have been sold in the first three-quarters of the year, compared to 4 274 in the same period last year.
Both vehicle categories still form a small proportion of total new vehicle sales in the country.
Significant investments have been made by local companies, including Zero Carbon Charge and GridCars, to expand access to charging infrastructure in the country.
-FIN24
While the incentive, which has been widely welcomed by the automotive industry, should bolster local manufacturing, it will only come into effect in 2026.
The amendment made several tax law changes, including the official introduction of a rule allowing vehicle manufacturers to deduct 150% of the cost of any building and new and unused equipment used mainly in producing electric or hydrogen-powered vehicles.
The incentive aims to boost local electric vehicle manufacturing capacity well into the 2030s. It will be in place for a decade and apply to all qualifying equipment and buildings, or additions to equipment and buildings, brought into use for the first time after 1 March 2026 and before 1 March 2036.
The legislation added a caveat to the 150% deduction. If the equipment is not mainly used for EV or hydrogen vehicle manufacturing for at least five years after it was first brought into use, then only 50% of the asset's cost is allowed as a deduction.
The legislation gives effect to the incentive first announced in the 2024 National Budget. In his budget speech, Finance Minister Enoch Godongwana said that he had allocated R964 million over three years to support the country's transition to electric vehicles.
"To encourage production of electric vehicles in South Africa, government will introduce an investment allowance for new investments, beginning 1 March 2026," he said.
Local players in the automotive industry hope the incentive will stimulate the local EV industry.
"[The tax incentive] is a crucial step in attracting investments, fostering innovation, and enhancing the sector's growth within South Africa. The sector has been working towards an electric vehicle stimulation policy for some time," automotive business council, Naamsa, said in a trade manual last year.
In November 2023, the Department of Trade Industry and Competition published a White Paper outlining a roadmap to boost local EV manufacturing capacity to ensure South Africa's automotive industry has a future in a changing energy landscape.
The provisions focus on building local manufacturing capacity rather than incentivising the local adoption of EVs.
At present, local electric vehicle sales are stymied somewhat by a stringent import duty. A 25% import duty is levied when electric vehicles are brought into the country, compared to the 18% duty levied on standard internal combustion engine cars.
In a post on X at the start of 2024, Elon Musk said that "super high" import duties meant that South Africa does not make sense for Tesla, one of the world's leading electric vehicle manufacturers.
In the intervening period, however, Musk has met with senior officials from South Africa, including Ramaphosa, to discuss investment opportunities in the country.
Despite the high import duties, Naamsa statistics show a sharp increase in new electric vehicle sales in South Africa in recent years, albeit from a low base.
A total of 1 079 new electric vehicles were sold in South Africa in the first three quarters of the year, the latest period for which data is available. This is up from 720 electric vehicles sold in the same period last year.
There has been a doubling of new traditional hybrid sales in the same period. Some 9 447 traditional hybrids have been sold in the first three-quarters of the year, compared to 4 274 in the same period last year.
Both vehicle categories still form a small proportion of total new vehicle sales in the country.
Significant investments have been made by local companies, including Zero Carbon Charge and GridCars, to expand access to charging infrastructure in the country.
-FIN24
