People buying affordable cars should not pay luxury tax. So why do they?
Tax reform for affordability
People buying affordable cars should not pay luxury tax. So why do they?
The world has a new car affordability problem. In the world’ s most car-centric market, the United States, the average transaction price of new cars has edged over $ 50 000. In South Africa, the influential Wesbank average new cost benchmark figure is now effectively R400 000.
Affordable new cars no longer exist for many first-time buyers. One reason is that mandated safety sensors, dynamic safety systems, and digital in-car hardware have significantly increased fixed input costs for entry-level models. But not all models, across all markets, are equipped to the same safety and tech standards, even if they are within the same corporate entity.
South Africa doesn’ t have mandated minimum safety spec standards, unlike many other global markets. It’ s why there are still new vehicles on sale in the local market that don’ t have airbags or ABS. And why some models sold in Europe and South Africa, have different active safety equipment specifications.
Cars that could never be mistaken for luxury vehicles are being targeted by ad valorem tax because new-car price inflation has collided with legacy ad valorem tax tables, which haven’ t been readjusted for way too long. And it’ s hurting the aspirations of firsttime buyers and families seeking the warranty and maintenance plan benefits of buying a new car, not to mention safety features.
The truth is that ad valorem taxes on cars below the R400 000 cost benchmark are misguided. SARS and Treasury understand what working and tax-paying South Africans need, even when it requires reforming long-standing tax issues. The 2026 budget finally raised the VAT threshold for small businesses from R1m to R2.3m, something small businesses and sole proprietors had been asking for since 2010.
What SARS and Treasury now have to do is address the issue of new-car affordability in South Africa. The most important segment is those vehicles under R400 000. And what industry needs is a bold ad valorem tax exemption for humble, affordable family vehicles, which, in specification and purpose, are anything but luxury goods.
If the safety and technology specs are lower on some of South Africa’ s entry-level vehicles, why are basic family cars still so expensive? It’ s a legacy industrial tax issue.
How budget cars became luxury goods
When the automotive industry and the government conducted long-term scenario planning to incentivise local industry in the late 1990s, the vehicle tax on entry-level cars wasn’ t an issue. Why? Because the ad valorem sliding scale tax was set comfortably above the entry-level cars of that time. In the late 1990s, several local OEMs marketed affordable family cars priced around R50 000 and luxury car tax wasn ' t a consideration.
Three decades later, the ad valorem tax is adding a real burden to what are very basic entry-level family cars. Cars without leather seats. Or luxury cabin trim.
MARCH 2026 34 WORDS IN ACTION