With the upcoming review of South Africa’s petrol prices, there are a variety of input elements government will assess in an effort to reduce pressure on motorists.
However, despite taxes being one of the largest contributors to high fuel prices, industry experts believe it is the one thing the powers that be won’t touch.
Government’s Golden Goose
The main elements in local fuel rates are the rand/US dollar exchange rate and international oil prices, which together determine the Basic Fuel Price (BFP).
South Africa mainly relies on imported petroleum and it pays its international suppliers using the US dollar as a common currency, as such, any devaluation in the rand/US dollar exchange rate elevates the price the country pays.
Furthermore, the international oil price is the largest determinant of imported crude petroleum prices, with an increase in the former usually translating to a correlating jump in the latter.
In July 2024, the BFP is set at:
- Petrol 93 – R11.76/litre
- Petrol 93 – R12.16/litre
- Diesel 0.05% – R12.33/litre
- Diesel 0.005% – R12.57/litre
Following the BFP, the second biggest contributor to domestic fuel prices is taxes and levies, of which there are no fewer than six line items.
As of July 2024, the value of the various taxes are:
| Tax | Value |
|---|---|
| Slate Levy | 0.00c/l |
| Petroleum Products Levy | 0.33c/l |
| IP Tracer Levy | 0.00c/l (petrol) | 1.0c/l (diesel) |
| Customs and Excise Duties | 4c/l |
| Road Accident Fund Levy | R2.18/l |
| General Fuel Levy | R3.96/l (petrol) | R3.84 (diesel) |
| Total | R6.18/l (petrol) | R6.07/l (diesel) |
The rest of the prices we see at the pumps consist of elements such as storage and distribution costs which are rather self-explanatory, as well as wholesale and retail margins which are used to pay things such as employee wages.
Despite taxes being a large contributor to soaring fuel prices, experts believe it is the only thing government likely won’t adjust.
Charles de Wet, an executive at ENS Africa’s Tax Practice, notes that fuel taxes are a veritable Golden Goose for government as it is one of the easiest forms of tax to collect in the country as well as one of the largest revenue streams for the National Treasury.
Motorists also rarely think about these surcharges when they pay for fuel at service stations, unlike how they can see deductions on their paycheque at the end of the month, leading to far fewer protests against the exorbitant levies.
The GFL by itself produced over R93 billion during the 2023/2024 financial year for government coffers, accounting for approximately 5% of all tax revenue.
Likewise, the Road Accident Fund (RAF) Levy, which is used by the RAF to compensate victims of road accidents, generated R48 billion over this same period.
De Wet said taxes have become a sizeable component of fuel costs due to government’s poor financial literacy.
“What we have seen previously is that the fuel levy has been used to boost government revenue and try to balance the budget,” he said.
When the GFL was initially introduced, it was only intended to fund maintenance and expansion of road infrastructure.
However, it was soon moved into the general revenue account and is now dispersed to the various ministries to use as they see fit.
In light of the importance of fuel levies and the ease with which they are collected from the motoring populous, De Wet said it is highly doubtful that the GFL and RAF Levy will be reduced when government completes its fuel price review.
The Department of Mineral Resources and Energy previously indicated that it would revisit industry margins with the goal of cutting costs for motorists, however, with these taking up a comparatively small portion of fuel prices, any changes would likely have a minimal effect.
Join the discussion