South Africans could be paying R35,000 less for a car

South Africa’s “luxury good” tax, which applies to cars over R250,000 and has remained unchanged for almost 30 years, is overly inflating vehicle prices.
This is according to Greg Cress, Africa Principal Director of Automotive and eMobility at Accenture, who believes that adjusting the ad valorem tax could greatly benefit South Africa’s electric vehicle (EV) future.
Ad valorem is added to a product’s value to boost its price and make locally produced vehicles more attractive to the domestic market.
In the South African context, ad valorem is a tax on products deemed luxury items such as motor vehicles, electronic equipment, and cosmetics. Conventionally, it’s just a tax based on the value of a transaction.
However, when the tax was set for cars 30 years ago, R250,000 could buy one far more “luxury” than today.
For instance, in 1994, you could buy a Mercedes-Benz E220 for R179,900. Adjusting for inflation, that same amount of money would be around R956,700 today.
Similarly, thirty years ago, one could buy a Jaguar XJ-6 AT for R369,505, worth R1,965,017 today if adjusted for inflation.
Thus, a Mercedes-Benz was not considered a “luxury” for the purposes of ad valorem in 1994, while a Jaguar was.
Today, only cars considered budget models are below R250,000.
Three of the five Suzuki Swift models are priced below the threshold, beginning at R213,900.
One can also buy a 2024 Volkswagen Polo Vivo Hatch for between R240,000 and R250,000.

Consumers are even being charged ad valorem tax for the most affordable EV in the country.
This is the BYD Dolphin, priced at just over R539,900 even though the car is sold for R253,823 in China.
If inflation had been considered for the ad valorem tax, only goods that cost more than R1,329,493.09 would be taxed as a luxury good.
Cress argues that there are no EVs below the R250,000 threshold, meaning that due to the tax applied, the adoption of EVs in South Africa will be slow.
If local consumers’ adoption is slow, this will hamper demand and the potential for motor vehicle manufacturers to begin EV production in South Africa.
The ad valorem tax is ultimately only a fraction of the tax added onto vehicles such as the BYD Dolphin.
Cress said that “temporarily lifting import duties on EVs could catalyse consumption and encourage manufacturers to invest in local production.”
He notes that the country manufactures roughly 600,000 vehicles annually, exports 60% of production, and imports another 300,000 cars.
If most of South Africa’s vehicle production is being exported, electric vehicle production as an industry needs to start growing and advancing, given its global relevance.
This is especially true if import policies need to be considered, such as the EU’s Carbon Border Adjustment Mechanism, which requires importers to report CO2 emissions from imported goods.
To remain competitive in that space, South Africa would need to refine its manufacturing process, which will need local demand to stimulate investment.
Cress suggested raising the threshold to R400,000 to allow some EVs to enter the market and become viable substitutes for South Africans looking to purchase a car below that threshold.
“If we can achieve a goal of more than 5% of new car sales being electric by 2026 — approximately 30,000 annual units — we will reach a tipping point that will spur the necessary infrastructure, including widespread EV charging stations powered by renewable energy,” Cress said.
The formula for the ad valorem tax is as follows:
- % = [(0.00003 * retail value less 20%) – 0.75]
The maximum ad valorem tax that can be applied is 30%. At the moment, any vehicle imported above the price of R250,000 will have at least 5.25% added.
The table below shows the ad valorem tax applied to each abovementioned amount.
Amount | Ad valorem |
R250,000 | 5.25% = R13,125 |
BYD Dolphin (R253,823) | 5.34% = R13,554 |
R400,000 | 8.85% = R35,400 |
R1,329,493 | 30% = R398,848 |