Edward Kieswetter’s R8 billion second-hand car headache

South Africa loses over R8 billion a year in direct taxes from the illegal import of used cars, and this number is set to grow as motorists face pressure. 

South Africa has prohibited the importation of used vehicles, yet around 30,000 of these cars still enter the country annually from Botswana, Lesotho, and Eswatini (Swaziland). 

These neighbouring nations lack strict controls on the import of used vehicles, which allows dealers to use them as entry points for smuggling cars into South Africa.

By sidestepping official import procedures, these vehicles escape taxes and duties, resulting in substantial revenue losses for the South African government and placing local dealerships and manufacturers at a disadvantage.

According to Naamsa and The Automotive Business Council, the illicit importation of used cars costs the government between R5 billion and R8 billion yearly in lost direct taxes.

The cost to the South African fiscus has more than doubled in just a few years, with the illegal import of used cars costing the country R3.8 billion in 2020. 

“Illegally imported second-hand vehicles make up 7.5% of South Africa’s 12.5 million car fleet. These cars are often involved in criminal activities because they are not traceable,” Mikel Mabasa, CEO of the Naamsa, said. 

The rise in illegal used car imports is detrimental to the local automotive market. It impacts sales, impedes local manufacturing and technological progress, and undermines job creation. It also fosters criminal activities.

Although consumers seeking affordable options may not prioritize the revenue loss, they should be aware that personal risks are substantial.

“Illegal used car imports are often very old and may not meet local regulations and safety standards, potentially endangering motorists and other road users,” Mabasa said. 

Stemming the flow of illegal used car imports is difficult and requires the buy-in of law enforcement agencies, Transnet, and SARS. 

“We’ve already spoken to Transnet, and they’ve agreed that the vehicles imported to neighbouring countries will now move from the Durban port to the Maputo port. So we’re moving them away from South Africa into Mozambique,” Mabasa said. 

While illegally imported used vehicles are often sold at attractive prices, they carry significant risks that can lead to severe legal and financial consequences.

Buyers face particular challenges in obtaining warranties, spare parts and after-sales service. The consequences of buying such a vehicle are listed below –

• Legal risks – Possession of an illegal vehicle can result in fines, vehicle seizure, and even criminal charges. In the event of an accident, the driver could face liability issues and in some cases, jail time if found guilty of knowingly purchasing and using an illegal vehicle.
• Lack of warranty and parts – Grey vehicles often do not come with a manufacturer’s warranty or after-sales support, and buyers of these vehicles are likely to face challenges in obtaining spare parts.
• Insurance issues – No insurance company in South Africa will knowingly cover grey vehicles. This leaves owners of grey vehicles without protection in cases of accidents or theft. Even if a policy is initially granted, it may be invalidated upon discovery of the vehicle’s status at claim stage.
• Financial loss – Without insurance, owners bear the full cost of repairs or loss due to accidents or theft. Additionally, resale value for grey vehicles is significantly lower, leading to financial loss.

The trade of illegally imported used vehicles is only part of South Africa’s growing illicit trade problem, which is estimated to cost the country R100 billion a year.

During South Africa’s pandemic lockdowns, which halted tobacco sales, there was a notable increase in the illegal cigarette market. 

This led many smokers to turn to underground sources, and many have since stuck with these illicit vendors rather than returning to regular tobacco shops.

Compounding the issue, SARS was significantly undermined during the period of state capture, weakening its ability to combat these illegal activities.

Alongside the boom in the illicit cigarette trade, there has been a significant rise in the illegal production and distribution of alcohol in South Africa.