Since its introduction in South Africa during 2009, the ability of vehicle emissions tax to reduce CO2 emissions has been questioned, but not yet assessed. The purpose of this paper is to attempt such an assessment by considering tax designs to reduce passenger vehicle CO2 emissions.
In this exploratory study, the authors reviewed literature on tax designs to reduce CO2 emissions, and compared the design of current taxes on passenger vehicles in South Africa to the tax designs most advocated in the literature to evaluate the effectiveness of the current South African design for this purpose.
Tax designs refer to the stage when taxes are levied (purchase/ownership/usage taxes) – levying taxes at one stage may more effectively reduce emissions than levying them at another. The current tax focus on consumers may indeed affect taxes' ability to reduce emissions, and in the current tax mix, taxes on passenger vehicles may not be the most effective way of reducing emissions. The investigation of a “feebate” policy as an alternative initiative to address increased passenger vehicle CO2 emissions is recommended.
Only anecdotal evidence questions the ability of the vehicle emissions tax to reduce CO2 emissions. This study is intended to elicit further discussions on other fiscal reform initiatives aimed at reducing CO2 emissions by passenger vehicles in South Africa.
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