Lower fuel prices next month could make way for higher fuel levies

The Organisation Undoing Tax Abuse (Outa) said it is concerned that if South African fuel prices decrease in September, government may take this chance to increase fuel levies to raise income for servicing debt, reports BusinessTech.

Domestic fuel prices are set to drop by up to R2.60 per litre for petrol and up to R2.30 per litre for diesel next month, largely as a result of international oil prices decreasing by around 9% and the rand appreciating by 2% during the first weeks of August.

“While this reduction will most certainly be cherished, even at the expected price of R22.83/l for next month, this is still 25% above the price of R18.34/l in September last year,” said Outa.

“However, Outa is concerned that the Minister of Finance Enoch Godongwana may seize the opportunity of this petrol price reduction to increase the fuel levy by 25c to 30c per litre, in order to raise additional revenue to cover the Gauteng freeway improvement bonds, which the e-toll debacle has failed to do.”

Outa said that even if the levy is only increased by 25c/l, it will add an additional R5.5 billion to the Treasury each year.

“Compare this to a correctly priced Gauteng freeway upgrade, which ought not to have cost the state more than R0.5 billion a year to finance this capital investment over 20 years,” it said.

The minister of transport recently hinted that a final announcement on the fate of e-tolls will coincide with the country’s medium-term budget policy statement due in October.

“Furthermore, there have been strong hints that the Minister of Finance will increase the fuel levy to offset the scrapping of e-tolls,” said Wayne Duvenage, Outa CEO.

“Should this happen, Outa will denounce this decision on the basis that the fuel levy has already been increased in excess of R2.50/l since the Gauteng freeway upgrade began in 2008.”

Duvenage said that, at the time, the government failed to take up Outa’s suggestion of a ring-fenced 10c/l increase to the fuel levy, which would have settled the freeway bonds by today.

When times are good, increase levies

Outa’s fears of the finance minister increasing fuel levies as soon as market conditions improve are not unfounded.

In mid-2014 the local petrol price sat just above R14/l, and around eight months later by February 2015, it had decreased to R10.31/l.

“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 Duvenage.

This decision alone contributed roughly R17 billion to Treasury each year thereafter, and permanently added 80c/l 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.”