The Minister of Mineral and Petroleum Resources Gwede Mantashe has revealed that government is discussing changes to the General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy to reduce the burden of high fuel prices shouldered by South African motorists.
This comes after the so-called Fuel Price Intervention Plan (FPIP) was tabled in Cabinet last month.
“Included in the discussions of fuel prices, are discussions on, but not limited to, the General Fuel and the Road Accident Fund levies,” said Mantashe at the 30th edition of the Africa Oil Week (AOW) conference.
“In the fuel price, there is the General Fuel Levy, there is the Road Accident Fund Levy linked to the price of fuel. Our argument is that you are distorting the price of fuel. Let’s find a formula of separating them and have the price of fuel visible, and when there is intervention in the fuel price, we can see it.”
He said government intends to conclude those discussions “in the shortest possible time.”
As at September 2024, the GFL accounts for R3.84 per litre in the prices of diesel and a larger R3.96 per litre in petrol.
While the surcharge was initially brought in to create a dedicated fund for road repairs and upgrades, it was soon shifted over to the general purse and it is now dispersed to various government entities to use as they see fit.
Meanwhile, the RAF Levy tacks on a further R2.18 per litre across the board and is funnelled to the Road Accident Fund to compensate victims or the families of victims of accidents on the country’s roads.
Together, the GFL and RAF Levy contribute a minimum of R6.02 per litre to every litre of fuel sold in South Africa, up to a maximum of R6.14 per litre.
The statement by Mantashe comes as quite the surprise, given the importance of these levies for government coffers and the fact they have not been adjusted in three years.
Several industry experts have voiced their opinion on the FPIP, firmly stating they do not expect the authorities to make any adjustments to taxes as it could force them to recoup their losses elsewhere, such as higher income tax or VAT.
Light on details
Automobile Association (AA) spokesperson Layton Beard highlights that Mantashe’s statements were very light on details and that we should maintain a cautious optimism until more informative announcements are made with regard to the FPIP.
“So, we’ve got these discussions going on, but what is the basis of these discussions and what exactly is being discussed,” said Beard in an interview on The Money Show.
He suspects that there will be a headbutting between the Department of Mineral and Petroleum Resources (DMPR) and Treasury as the former will be focused on slashing fuel prices wherever possible while the latter will put more priority on bolstering the nation’s finances.
Over the 2023/2024 financial year, the GFL generated a massive R93 billion for Treasury – equating to approximately 5% of all tax income – making it one of the most important revenue streams for government.
Likewise, the RAF Levy brought in around R50 billion for the Fund over the same period, and the RAF has already called on government to hike its bespoke levy as it claims it lacks vital finances needed to carry out its duties.
“How they’re going to fill that gap, I think is up for discussion,” said Beard.
He notes that the AA believes it is not so much the payment of the levies that irks motorists, but rather the fact that they do see a return on their investment.
“I think South Africans are very angry paying it because they don’t see a return on investment… if potholes were fixed, if roads worked, if the infrastructure was there, I don’t think people would have as much of a problem paying it as they do when they see crumbling infrastructure,” said Beard.
“The second issue is the one of corruption and graft. Is that money just going into a pit and into somebody’s pocket? That really is of concern.”
Isaah Mhlanga, Chief Economist of Rand Merchant Bank, contends there is a very small chance that government would compromise the GFL and RAF Levy.
“If you look at the general shortage of funding for the many government priorities, including state-owned companies such as Eskom and Transnet among others, but also in infrastructure investments, it’s almost unimaginable that National Treasury will be in a position to say ‘we’re giving up R150 billion’ when they need more to invest in critical infrastructure,” said Mhlanga.
“One way or the other, that funding will have to be raised through some means, and I would imagine some form of taxes.”
This will simply shift the tax burden from one type of consumer to the next, but won’t resolve the underlying issue, he said.
Mhlanga recommends that the DMPR and Treasury should instead focus their discussions on tailoring the fuel price formula to be more market-determined than to be set by government on a monthly basis as this can introduce “some efficiency” to the cost calculation.
However, completely removing the GFL and RAF Levy holds potentially disastrous effects for the entire country, he said.
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