CLAMPDOWN ON JAPANNESE SECOND-HAND CARS

While government will raise money through an increase in taxes and introduction of new levies on grey imports, the taxes will kill the diversity of the public transport industry, squeeze out ordinary Batswana and accommodate only a few wealthy individuals who can afford to buy cars at establishments like Motor Centre, Naledi Motors and Barloworld, says Edison Tlhomelang, Chairman of the Botswana Taxi Drivers Association. He spoke with Staff Writers KEABETSWE NEWEL and KABO RAMASIA

CLAMPDOWN ON JAPANNESE SECOND-HAND CARS

According to Dr Wilfred Mandlebe, Permanent Secretary (PS) in the Ministry of Finance and Economic Development, the government is working on modalities of implementing the levy, already declared, on imported second-hand vehicles. He did not state a date. However, those in the know say that any time from April 1st 2021, the Botswana Unified Revenue Service (BURS) will charge an extra levy known as carbon tax on second-hand (Japanese) cars imported into Botswana.

 

In 2019, BURS increased taxes on the cars popularly referred to as ‘Fong kongs,’ to up to 37 percent. Combined, the taxes on grey imports will make the cars more unaffordable. The motor industry is currently the second largest of Botswana’s imports. Second-hand cars are valued at over P1 billion and are registered in Botswana every month on average.

 

FONG KONG DEALERS BITE THE DUST AS DEMAND DECLINES

 

 

By the beginning of 2019, Samson Sithole’s* car dealership in Mogoditshane was booming. He was selling at least five cars a day, occasionally more. With business that good, he had expansion plans. The plan was to open another dealership in Francistown and Molepolole. But before that, he had to expand his Mogoditshane dealership to meet customer demand. Sithole increased his staff complement to 12 young Batswana. In an interview, he reveals that all the 12 workers were always on their feet, attending to the ever-demanding customers, selling new cars, registering them and importing more.

 

“I too was always swamped with administration work,” he says, reminiscing of the days of glory. Those days have suddenly evaporated. Located just behind Trans Mogoditshane, Sithole’s dealership shows signs of a business on the wane. He no longer has the 12 employees. Upon visiting his establishment, the remaining four who work for him are busy playing mhele under an acacia tree. It was easy to tell that business is in distress as they all scrambled to attend to The Business Weekly & Review team in the hope of selling at least one car.

 

“Business declined drastically in 2019 when BURS decided to clamp down on us and adjusted taxes to up to 37 percent of the value of the car. Cars became more expensive and customers became scarce. As we speak, in a good week I sell at least two cars. I was forced to retrench eight of my workers because there was no money to pay them,” he says.

 

Another car dealer, Thabiso George*, says he anticipates a collapse of the car dealership business because demand is no more. “Only a few moneyed dealers with political influence will remain,” he adds but refuses to explain why that should be the case. George notes that most Batswana who buy second-hand cars are the low to middle-income earners. Most, he adds, do not have formal jobs to qualify for loans.  His estimation is that these people usually have a budget of between P15 000 and P30 000. George says cars that used to sell at that value range now sell at up to P45 000.

 

“When the new levy kicks in, obviously prices will further rise. Even for the lower middle class, who would ordinarily afford to take loans, most have been retrenched because of COVID-19 woes. We all know that on average, Batswana earn around P5000 and are highly in debt because of the high cost of living in this country. As a result, the lower middle class too was reliant on second-hand cars,” says George, who seems to have come to terms with the possibility of closing shop permanently.

 

In addition, he reveals that while government says the ‘clamp down’ is to ensure that second-hand car dealerships are tax-compliant and it needs to raise money through carbon tax, the reality is that it affects the ordinary Motswana more than anything.

 

THE ORDINARY MOTSWANA, PUBLIC TRANSPORT INDUSTRY AFFECTED

 

George is right. At the Gaborone Bus Terminus, all taxis and combis are second-hand imports. ‘Local’ taxis and combis are almost non-existent. Mogomotsi Simon*, a 30-year old unemployed graduate of tourism and hospitality, says he borrowed P20 000 from his uncle and paid for a Honda Fitt to start his own taxi business. “I was lucky. I bought the car in 2019 when they were still affordable. This car is currently worth P35 000 and I am sure I would have never raised that much. I decided to go into this business because I was tired of being unemployed despite being a graduate. Thanks to affordable second hand cars, I can now feed my 3-year old son and buy food for my mother. Other young people who may want to follow in my footsteps will fail because of affordability,” Simon explains.

 

All the taxis and combis at Gaborone Bus Terminus are second-hand imports sourced from Mogoditshane. According to the Chairman of the Botswana Taxi Drivers Association, Edison Tlhomelang, the second-hand cars have helped many Batswana partake in the multi-billion pula transport sector. “It is not only us here at the bus rank. Some have started their own staff transport businesses while others operate their own home an office delivery services or tour transport operations. This was made possible by the affordable second-hand cars. They empowered many Batswana to economic independence and stability,” Tlhomelang notes.

 

Asked about the new carbon levy, he says the only good thing about it is that it will help government raise money. “While government will raise money through a pile of taxes and new levies on grey imports, on the other hand, the levies will collapse the diversity of the public transport industry, squeeze out the ordinary Motswana and accommodate only a few wealthy individuals who can afford to buy cars at establishments like Motor Centre, Naledi Motors and Barloworld,” he said.

 

According to the Minister of Finance and Economic Development, Dr Thapelo Matsheka, the introduction of carbon taxes was done for two reasons: to help curb carbon emissions and to help prop up state coffers. But the second-hand car dealers are grappling to come to terms with the new levy because just in 2019, BURS clamped down on them, accusing them of under-declaring their tax obligations. It led to BURS revising the method it used to charge taxes on grey imports.  It is said BURS can charge up to 37 percent of the value of the car for clearance.

According to tax expert and Managing Director at Aupracon Tax Consultants, Jonathan Hore, Botswana imports a lot of second-hand vehicles and these are mostly demanded by low to middle income earners, as well as corporates. A Statistics Botswana report titled Transport & Infrastructure Brief Quarter 3 2020 says a total of 11,818 motor vehicle first registrations were recorded in the third quarter of 2020 (Q3 2020) and that 72.1 percent of them were passenger cars. Motor vehicle first registrations in Q3 2020 increased by 123.8 percent from 5,281 registered in the previous quarter.

 

“Out of the total first registrations recorded in Q3 2020, 80.1 percent were used vehicles. New and re-built vehicles made up 19.9 and 0.1 percent of the total respectively,” says Statistics Botswana.  Dr Burton Mguni’s report released in March 2021.

 

His national accounts office released another report in February 2021 titled “International Merchandise Trade Statistics” which records the country’s imports and exports. The report shows that Botswana received total imports amounting to P7.6 billion during December 2020. Diamonds contributed the most to the total imports at 36.1 percent (P2.7 billion). Vehicles & Transport Equipment contributed the second largest to Botswana’s import bill at 14.9 percent at P1.1 billion.

According to Statistics Botswana, 80 percent of the value of these imports, is made up of the Japanese imports

 

 

 

“Infact, most of the vehicles used by small to medium enterprises are imported, mainly from Japan,” says Hore at Aupracon. Explaining how the tax will work, Hore says the carbon tax may be levied as an ad valorem tax such as 5 percent of the value of the imported vehicle or as a specific tax such as P5 000 per each vehicle. “However, it would be expected that vehicles with bigger engines would pay more tax, as is common practice internationally. Details of how the tax will be structured are expected to be pronounced through a legal instrument which will also bring the tax into existence,” he explains.

 

If the levy is implemented, Hore worries that second-hand vehicles will become more costly than they currently are. “As many middle-income earners and small businesses rely on such vehicles for their day-to-day operations, it is hoped that the levy will not be heavy so as to balance the economic benefits arising from the vehicles with tax revenue generation,” the tax expert says.

 

He observes that some have suggested that the levy be extended to new vehicles as that would mean the government collecting more taxes, especially from high-income earners who buy such new cars. “If that was done, it would be expected that the new vehicles pay less carbon tax as they are known to produce less carbon monoxide compared to second-hand cars,” he says.

 

Hore emphasises that it is not in doubt that BURS will collect more taxes from the carbon tax. He notes that even if a heavy carbon tax is introduced, there are those who cannot afford new vehicles who will still go for second-hand imports. “My view is that the carbon tax will not be too heavy and imported second-hand vehicles will therefore still remain affordable, albeit a bit more costly,” he says.

 

 

Effective date

 

No further details were provided regarding the date of implementation of the tax. If the proposal goes through, it is likely to take effect from 1 April 2021, which coincides with the statutory fiscal year, or at any date soon after.

*Not their real names.