Tax­ing tyre ques­tions

AL­WYN VILJOEN learns why the tyre fee and tyre levy dif­fer, and where these taxes go

The Witness - Wheels - - FRONT PAGE -

SOUTH Africa’s tyre re­pair in­dus­try has been ask­ing a lot of ques­tions on where the new tyre levies will be spent.

Wheels in­vited Hermann Erd­mann, CEO at Redisa (Re­cy­cling and Eco­nomic Devel­op­ment Ini­tia­tive of South Africa) to ad­dress the is­sues, start­ing with the new tyre levy, its use and if the levy will re­place the ex­ist­ing waste man­age­ment fee.

The amounts in­volved are huge — in 2014 Erd­mann told Wheels the tyre levies amounted to R620 mil­lion a year, each cent of which was au­dited by three au­dit­ing firms — KPMG, Price-wa­ter­house­Coop­ers and Ernst and Young. What the in­dus­try now wants to know is where the levy on tyres will be spent.

Will it be used to re­cy­cle the moun­tains of tyres South Africans throw away each year, or will we see another for­tune that is sup­pos­edly ring-fenced to fund re­cy­cling, as is the case with the plas­tic bag levy, dis­ap­pear into the deep dark tax hole that funds new pres­i­den­tial jets or to pay for King Zweli­ti­hini’s ex­pen­sive an­nual hol­i­days in Lon­don?

In a generic state­ment, Erd­mann said Redisa is not a gov­ern­ment body and does not know what the pro­posed tyre levy en­tails. He said oper­a­tions are con­tin­u­ing as usual at Redisa, which is funded by a waste man­age­ment fee, and pointed out the dif­fer­ence be­tween a tax and the waste man­age­ment fee.

Levy and fee not the same

“Un­der­stand­ing the dif­fer­ence be­tween the Redisa waste man­age­ment fee and a tax is crit­i­cal to en­sur­ing the on­go­ing suc­cess of this new tyre re­cy­cling in­dus­try’s devel­op­ment.

“A tax is a com­pul­sory con­tri­bu­tion to state rev­enue, levied by gov­ern­ment on work­ers’ in­come and busi­ness prof­its, or added to the cost of some goods, ser­vices, and trans­ac­tions.

“Money col­lected from taxes goes into the gen­eral fis­cus. The waste man­age­ment fee on the other hand is a fee paid by pro­duc­ers to off­set the cost of deal­ing with tyres once they reach end-of-life.

“The Redisa Plan does not de­ter­mine that con­sumers carry the cost: it is up to tyre pro­duc­ers whether and how they re­cover their cost. A crit­i­cal dif­fer­ence is that this money is di­rectly and specif­i­cally ap­plied to deal­ing with the prod­uct and build­ing the re­cy­cling in­dus­try.

“These funds are man­aged re­spon­si­bly, in an au­dited and ac­count­able fash­ion, mak­ing it far more ef­fec­tive than a tax-based sys­tem where funds are di­luted into the gen­eral Trea­sury pool with­out be­ing ring-fenced.

“It is im­por­tant that Redisa col­lect the waste man­age­ment fee be­cause it al­lows us to change the fee struc­ture that pro­duc­ers and im­porters of tyres pay ac­cord­ing to an en­vi­ron­men­tal rat­ing sys­tem for tyres that is cur­rently be­ing de­vel­oped.

“To this end, Redisa is build­ing a tyre Prod­uct Test­ing In­sti­tute that has as its main ob­jec­tive to test tyres and en­vi­ron­men­tally rate and cer­tify each type of tyre. The bet­ter the rat­ing, the lower the fee.

“Cur­rently, the waste man­age­ment fee paid to Redisa is stan­dard­ised at R2,30 per kilo­gram. Once an en­vi­ron­men­tal rat­ing sys­tem has been de­vel­oped and linked to tyre ho­molo­ga­tion stan­dards, Redisa will be in a po­si­tion to set a new pric­ing struc­ture.

“This will al­low those tyres man­u­fac­tured us­ing bet­ter en­vi­ron­men­tal stan­dards to have a lower fee, while those tyres that are man­u­fac­tured with more ad­verse ef­fects on the en­vi­ron­men­tal will have a higher fee.

“This ca­pac­ity to in­tro­duce a dif­fer­en­ti­ated fee struc­ture is ab­so­lutely fun­da­men­tal to the Redisa busi­ness model be­cause it cre­ates an up­stream in­cen­tive for tyre man­u­fac­tur­ers to change their pro­duc­tion meth­ods to cleaner tech­nol­ogy and lower en­vi­ron­men­tal im­pacts.

“This means that in the longterm, should all tyre pro­duc­ers start us­ing pro­duc­tion meth­ods that are fully cra­dle-to-cra­dle cer­ti­fied tyres, then the waste man­age­ment fee charged in South Africa will re­duce to zero since the as­so­ci­ated en­vi­ron­men­tal im­pact will be zero.”

Plas­tic bag tax

As for how Redisa’s man­age­ment fee dif­fers from a plas­tic bag tax in­tro­duced in 2004, Erd­mann said one of the key chal­lenges of the plas­tic bag tax is that the funds col­lected go di­rectly to the gov­ern­ment fis­cus, and the DEA has to ap­ply to Trea­sury to re­coup monies to de­velop the promised re­cy­cling in­dus­try.

He said the Buy­isa-e-Bag NGO that was started as the im­ple­men­ta­tion arm, was closed in 2011 with­out be­ing able to achieve its ob­jec­tives.

“A study by the CSIR re­ported that in the Fe­bru­ary 2006 fi­nan­cial year only seven per­cent of the levies col­lected ac­tu­ally got paid to Buy­isa-e-Bag, so it is per­haps not sur­pris­ing that the or­gan­i­sa­tion shut down with lit­tle to show. In con­trast, when the Redisa Plan was leg­is­lated, Min­is­ter [Edna] Molewa em­pha­sised that the waste man­age­ment fee col­lected would not end up in the gen­eral fis­cus, and that it would be the re­spon­si­bil­ity of those in­tro­duc­ing the waste (i.e. tyre man­u­fac­tures and im­porters) to pay for the re­me­di­a­tion of the re­sult­ing waste.

“The ad­van­tage is that Redisa is 100% ac­count­able for what hap­pens with the funds through strict cor­po­rate governance prac­tices and au­dit re­quire­ments that en­sure these funds are ap­plied ac­cord­ing to the man­dates set out in the plan.

“With­out the waste man­age­ment fee be­ing used as pre­scribed in the Redisa Plan, the new tyre re­cy­cling in­dus­try would not have been es­tab­lished, and the cre­ation of jobs, small busi­nesses and other so­cio-eco­nomic ben­e­fits would not be pos­si­ble.”

So what next?

“We have al­ways be­lieved that with waste comes op­por­tu­nity, and that by look­ing at waste dif­fer­ently from a cir­cu­lar econ­omy per­spec­tive we can only grow as an econ­omy.

“With South Africans gen­er­at­ing more than 108 mil­lion tons of waste per year and only 10% of this be­ing re­cy­cled, there is an op­por­tu­nity to turn the bur­den of waste around.

“The cir­cu­lar econ­omy ap­proach could suc­cess­fully be used to re­cover and re­cy­cle all kinds of waste.

“The Redisa Plan pro­vides gov­ern­ment a so­lu­tion at no cost to the fis­cus, and drives GDP and em­ploy­ment growth.”

PHOTO: REDISA

100% ac­count­able: Hermann Erd­mann.

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