South African motorists may be in for a nasty surprise this October as Treasury’s annual medium-term budget policy statement (MTBPS) could bring with it increases to national fuel taxes.
During his budget speech in February 2024, Finance Minister Enoch Godongwana announced there would be no changes to the country’s General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy for 2024.
This marked the third consecutive year in which these levies remained unchanged as part of a relief measure introduced in 2022 to protect consumers from exorbitant prices at the pumps, which the authorities estimate have spared motorists over R4 billion in the past financial year alone.
However, while the announcement was celebrated by the general public, one civil society organisation wasn’t convinced that it was being done to benefit the nation’s citizens.
Shortly after Godongwana’s speech, the Organisation Undoing Tax Abuse (Outa) warned that the tax halts were likely made as part of the ruling (at the time) ANC party’s electioneering efforts.
Therefore, Outa said it does not expect the relief to continue until the next budget speech in February 2025 as government does not have the finances to continue supporting motorists to such an extent.
The GFL and RAF Levy are two of the easiest taxes to collect, with the former generating a massive R730 billion for Treasury over the last decade, making it a vital revenue stream for the state.
“Outa is of the opinion that this is an election year, and as such the budget was an election budget but due to the fiscal constraints SA’s budget is facing, [the taxes] will probably increase in the [MTBPS],” said the organisation.
Outa’s fears are not unfounded.
In mid-2014 the local petrol price sat just above R14/litre, and around eight months later by February 2015, it had decreased to R10.31/litre.
“The then Minister of Finance Nhlanhla Nene decided to introduce massive and unnecessary increases to both the General Fuel Levy and the Road Accident Fund levy of 30c/l (14%) and 50c/l (48%), respectively,” said Outa.
This decision alone contributed roughly R17 billion to Treasury each year thereafter and permanently added 80c/litre to the price of local fuels.
“These short-decisions may provide government with quick-fix short-term tax gains, but they have a detrimental impact on the country over the long term,” said Outa.
“Government should instead be looking at introducing greater efficiency into managing the country’s affairs, as opposed to seeking ways to lean more heavily on its taxpayers.”
According to Treasury, the next MTBPS will be tabled before the end of October 2024 with any potential fuel levy adjustments likely to take effect on the first Wednesday of November.
Critical dates for Treasury announcements.
Call to hike fuel taxes
Apart from dwindling finances, there are certainly other motivators for government to raise fuel taxes this month.
Things are going well at the moment with global oil prices and the rand/US dollar exchange rate subsided from record levels seen over the past few years.
In February 2023 when government previously froze levies, one barrel of Brent Crude oil traded for around $86 and the rand swapped hands with the greenback at approximately R18/dollar.
Market conditions have improved significantly since then, with the black gold now trading close to $75/barrel and the ZAR/USD currency pair sitting at around R17/dollar.
Inflation also dropped to a lower-than-expected 4.4% in August 2024, bringing about an interest rate reduction for the first time since May 2023.
These welcome developments have brought to fruition four consecutive fuel price cuts over the course of June to October 2024, with fuel prices consequently reaching levels last seen in early 2022 when the levy increases were initially stalled.
Government may thus argue that its relief measures have weathered the storm successfully and that it’s time for it to recommence with annual, or even bi-annual tax hikes to recoup its losses.
Additionally, the RAF recently called on government to increase the RAF Levy which has been stuck at R2.18/litre since 2021.
This surcharge is collected by the RAF to compensate victims or the families of victims of vehicle-related accidents on South African roads.
Earlier this year, it was revealed that the RAF paid out over R43 billion in injury benefits for incidents that took place between 2020 and 2022 – all funded by its bespoke levy.
The organisation recorded a R1.5-billion budget deficit for the 2023/2024 financial year, however, which it partly attributes to the lack of adjustments to the RAF Levy.
It claims that the R2.18 tax has effectively been eroded to R1.93 in real terms owing to inflation, leaving it short of vital funding.
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