R6.55 petrol price cut on the cards for South Africa

South African motorists are in line for massive fuel price cuts if the National Treasury’s long-term plan to permanently remove fuel levies is realised.

Together, the various levies, including the General Fuel Levy (GFL), Road Accident Fund (RAF) levy, and Slate levy, add more than R6.55 to every litre of petrol and diesel sold in South Africa.

This provides around R80 billion in revenue for the state, adds R55 billion to the RAF’s coffers, and reimburses fuel importers and retailers for losses during periods of under-recovery.

However, Finance Minister Enoch Godongwana confirmed that the National Treasury plans to replace these levies with other revenue sources.

Speaking to 702, the Minister noted that he is committed to a review of South Africa’s various fuel levies and advocates for their permanent removal.

Godongwana explained that the long-term plan is to remove levies on petrol, which requires Treasury to consider the two main levies – the RAF levy and the GFL.

Since 2008, the General Fuel Levy has increased by 250%, while the Road Accident Fund levy has surged by 500% over the same period.

In his opening address to Parliament in July 2024, President Cyril Ramaphosa promised that the Government of National Unity (GNU) would review petrol prices to identify where costs could be reduced.

His proposal included evaluating the general fuel price formula and how it can be adapted to lower costs at the pump.

This formula is broadly made up of the Basic Fuel Price (BFP) and the levies and margins distributed to the government. 

The BFP is determined by using the international product price of various fuel types and the rand-dollar exchange rate at the time.

While the exchange rate plays a role in monthly petrol and diesel price fluctuations, the various levies and margins make up most of the final price.

Giving up R80 billion in easy revenue

The Minister admitted that while the government’s long-term plan is to remove all fuel levies entirely, this will be challenging.

He explained that the first levy that needs to be looked at is the RAF levy, but to remove it, South Africa will have to adjust the fund’s insurance model so it no longer relies on fuel sales.

“Doing this would remove R2 per litre from the petrol price. That is massive. Just removing the RAF Levy, you will realise a major decrease in the price of fuel,” he explained.

The Minister gave no further details about how he plans to change the RAF’s model to make it more sustainable and less reliant on levies collected from fuel sales.

Changing the RAF’s insurance model would take serious consideration, since the fund is technically insolvent.

“Secondly, there is the GFL, which goes into the national fiscus. On its own, that revenue is R80 billion. We have got to find a way of phasing it out,” Godongwana added. 

“In doing so, we will lose R80 billion in revenue and then have to find a way to close that gap. That is a discussion we will have to have.” 

The General Fuel Levy was first introduced in 1983 to fund road maintenance and expansion of the road network, but the revenue is not ring-fenced and goes into the state’s general account.

As a result, the government can do with this money whatever it wishes, making it a relatively easy way for the government to boost its revenue.

Fuel levies also have a broad base and are easy to administer, making them more attractive and financially viable to increase than income taxes.