South Africa’s new Government of National Unity (GNU) has pledged to investigate the way that fuel prices are formulated in order to reduce the financial burden on households, but it’s unlikely that any major changes will be made as a result.
A significant contributor to the cost of every litre of liquid gold is the various taxes and duties imposed by the government, making for a lucrative revenue stream that the state is now largely dependent on and unlikely to give up.
From road maintenance to a rainy day fund
Charles de Wet, an executive at ENS Africa’s Tax Practice, recently spoke about South Africa’s fuel levies and how the investigation to reduce fuel prices is unlikely to make any substantial difference at the pump.
The two largest determiners of the retail fuel price each month are the rand/US dollar exchange rate and international oil prices, which together create the Basic Fuel Price (BFP).
Neither of these factors are directly controlled by the South African government, which means that price relief will have to come from somewhere else.
What the government does have control over, however, are the various taxes and levies added to every litre of petrol and diesel sold in the country, which are documented below:
| 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) |
As you can see, the General Fuel Levy (GFL) is by far the largest contributor, as it currently represents two-thirds of the above-mentioned taxes.
Put another way, the GFL makes up around 18% of the R21.92 cost of petrol 93 that citizens are paying as of August 2024.
Slashing it would therefore be the most obvious way to alleviate financial pressure on households, but this is unlikely to happen.
According to De Wet, the GFL is a major source of government revenue, making up around 5% of all taxes collected in South Africa – the equivalent of R93 billion in the current financial year.
It is also a levy that is easy to collect and hard to avoid given petrol and diesel’s ubiquity in modern-day life, which helps to make up for the fact that only a small portion of South Africa’s population is eligible to pay personal income tax, wrote Daily Investor.
When it was first introduced, the GFL was earmarked as a fund for road maintenance and infrastructure upgrades, but it was quickly funneled into the general revenue stream and can now be used in any way the government sees fit.
De Wet argues that the GFL has become such a large component of local fuel prices because the government has poorly allocated its money, forcing it to look for new ways to generate funds and balance its budget.
Effectively, the General Fuel Levy is now used as a safety net to bail the state out of its poor financial decisions, which is why a drastic reduction is probably not going to happen.
The other major contributor to the nation’s petrol prices is the Road Accident Fund (RAF) Levy, which accounts for just under 10% of what you see at the pump.
Unlike the GFL, the RAF Levy cannot be used for general purposes and is instead allocated to the RAF to compensate persons injured in road-related accidents.
The issue is that the RAF is in dire financial straits right now, which means the levy is unlikely to be reduced when additional funding is required.
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