Decisive action by the National Treasury in response to soaring fuel prices has spared South African motorists approximately R4 billion in taxes in the past financial year alone.
In February 2022, the DMRE announced that there would be no increases to the General Fuel Levy (GFL) nor the Road Accident Fund (RAF) Levy for that year in an effort to protect motorists from the brunt of substantial fuel price increases.
At the time the GFL sat at R3.93/litre for petrol and R3.79/litre for diesel, whereas the RAF Levy was fixed at R2.18/litre for all grades of fuel.
South Africa’s highest fuel prices on record were seen during this period, with petrol soaring to as much as R26.74/litre in July 2022 and diesel to a peak of R25.75/litre in November.
While prices at the pumps started subsiding in early 2023, Treasury again made the promise in February of that year that it wouldn’t touch the GFL or RAF Levy to much fanfare from the motoring public.
It changed other aspects of the country’s fuel tax structure, however, which raised the GFL to R3.94/litre for petrol and R3.80/litre for diesel. Meanwhile, the RAF Levy was still pegged at R2.18/litre.
Come February 2024, once again, the GFL and RAF Levy were left alone. That said, an adjustment to the Carbon Fuel Levy, which is included as an add-on to the GFL, elevated the tax to R3.96/litre for petrol and R3.84/litre for diesel.
The GFL and RAF Levy may not have stayed true to their 2022 values over the last two years, nevertheless, the incremental annual increases tremendously benefitted consumers.
The Council for Scientific and Industrial Research’s Mathetha Mokonyama recently revealed that had Treasury not applied these interventions, local motorists would have paid a lot more in fuel taxes over the last year than they did.
“The Minister [of Finance] has for the past two years, since 2022, put a hold on increasing the General Fuel Levy and the Road Accident Fund Levy, and this year alone, that was equivalent to, from their estimates, about R4 billion that government had to sacrifice,” Mokonyama told CapeTalk.
Extrapolating this figure suggests that South African road users were spared in the realm of R8 billion in fuel taxes between March 2022 and March 2024.
Fuel Price Intervention Plan
The so-called Government of National Unity (GNU) will soon table a new Fuel Price Intervention Plan that will be anchored on “measures to tackle high fuel prices…[and] ensure that South Africans can afford the fuel and the ability to transport.”
The finer details of the document have yet to be revealed, however, Mokonyama does not anticipate the GNU to make sweeping changes to the current fuel tax structure due to its decision over the past two years to halt increases to the GFL and RAF Levy.
These taxes, of which there are at least six major line items, are necessary to fund the production, transport, and storage of fuels, as well as to balance the budget of government, said Mokonyama.
The GFL generated over R93 billion for Treasury during the 2023/2024 financial year, accounting for approximately 5% of all tax income, which in turn was dispersed to the various ministries within the government to spend as they see fit.
Likewise, the RAF Levy, which is used by the RAF to compensate victims of road accidents, produced R48 billion over this same period.
Should the GNU reduce these taxes, it might seek to make up for lost income in other areas such as heightened income tax or VAT, which would affect a far bigger portion of the population.
It’s therefore highly unlikely, although still possible, that the powers that be would compromise one of their biggest revenue streams.
Mokonyama suggested other avenues the GNU could pursue to achieve its intended goal, such as a price cap on certain grades of fuel, and importing already refined petroleum instead of investing in upgrading local refineries.
At present, petrol prices in South Africa are regulated and determined by the Department of Mineral Resources and Energy (DMRE) on a monthly basis, with service stations required to sell their product at this rate.
However, a price cap will do away with this regulation and instate a maximum price at which fuels can be sold, with filling stations then being given the freedom to push their products for a lower fee to attract paying customers.
“With the capping of the price, it will introduce a bit of competition into the market,” said Mokonyama.
“So instead of being very prescriptive, let’s allow the market to play.”
The possibility of a price cap on petrol 93 was already raised as far back as 2018, with the DMRE confirming to TopAuto in June 2023 that feasibility studies into this intervention were still ongoing and would be made public once completed.
Another possible measure to slash fuel prices revolves around the importation of refined fuels.
National Treasury has been paying the country’s fuel refineries to invest in better technologies that will allow them to produce cleaner fuels at a lower rate, a savings that could be passed on to motorists.
However, these expenditures have not borne fruit as the refineries have been using the monies elsewhere, said Mokonyama.
“So why don’t we just import refined fuel as opposed to paying for the capital expenditure of improving the technology?” he said.
“There is a conversation happening around that.”
Looking into the future, Mokonyama contends that it’s perhaps not the price of fuel that is wreaking havoc on consumer budgets, but rather the distances they are required to drive on a daily basis when running errands and going to work.
With this in mind, better spatial planning is key to getting South Africans to burn less money on petrol and diesel as well as to achieve the country’s emissions targets.
“One of the [consequences] of reducing the costs of fuel is that people will drive more, and that defeats the purpose of things like reducing greenhouse gas emissions,” said Mokonyama.
He referenced the City of Cape Town which is preparing to welcome as many as two million residents over the coming years, many of who will be everyday commuters.
“We need to think about where those people will be living, how they will be living, and how they will be travelling,” said Mokonyama.
“Up front, planning appropriately so that the kilometre per capita, the kilometre per person is minimised as much as possible.”
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