Taxing tyre questions
ALWYN VILJOEN learns why the tyre fee and tyre levy differ, and where these taxes go
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.”
100% accountable: Hermann Erdmann.