Bad news for petrol prices – Big tax hikes expected for South Africa this week

Finance Minister Enoch Godongwana will host his annual budget speech this Wednesday, 21 February 2024, in which he is widely expected to hike the main fuel taxes in the country.

Godongwana is expected to focus on the General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy, the two largest levies imposed on local fuel prices, which are currently pegged at R3.81-3.95/litre and R2.18/litre, respectively.

There were no increases made to these taxes in the last two budgets due to an unstable economic environment and a need to reduce financial pressures on households to stimulate spending.

Now that the market has largely stabilised, however, it is anticipated that government will recommence with annual hikes in fuel levies, said financial services firm PwC in its 2024 Budget Predictions report.

“The General Fuel Levy is the fourth largest revenue item in the budget and has become an increasingly important source of revenue in the last decade, contributing some R90 billion to tax revenues,” said PwC.

“Government is not in a position to continue to provide significant relief from this tax in light of its fiscal position.”

With this in mind, PwC awaits an increase both to the GFL and RAF Levy in line with inflation this Wednesday.

Recent data showed that inflation averaged 6.0% over 2023, which works out to a raise of approximately 22-24c/litre in the GFL and 13c/litre in the RAF Levy.

If these changes materialise, a minimum fuel price hike of 35c/litre is already on the cards for March, in addition to an expected increase of over R1.30/litre for all fuels.

General reform of the Road Accident Fund

Alongside the fuel tax alterations, PwC also expects to see a general reform of the RAF announced in Godongwana’s budget speech.

“The South African Reserve Bank (SARB) has identified seven elements in the fuel price as possible areas for reform,” it said.

“It indicated that a review of the Road Accident Fund will be one of the reforms offering the most significant benefits. It is hoped that Budget 2024 will announce a general reform of the RAF.”

A new bill that proposes sweeping changes to the RAF was tabled late last year, but several red flags have already been raised by experts on the matter.

The main suggestions detailed in the RAF amendment bill included replacing victim compensation with structured benefits, and doing away with general damages known as “sorry money”.

Law firm Gert Nel Inc. warned that these changes may result in victims not receiving adequate compensation for actual damages suffered, and that it may disqualify medical aid schemes from recovering the portion of money they paid on behalf of the victim from the RAF, which could lead to other consequences such as a hike in medical aid tariffs.

The Department of Transport allowed the public around one month to submit comments on the bill, an opportunity that several industry participants took, and it has since been working on adapting the legislation accordingly.

The restructured bill is therefore expected to be announced this Wednesday during the annual budget statement.