Fuel tax is not enough to fund South Africa’s roads

The fuel levy is a diminishing source of income for government due to technological advancements, and there are numerous concerns over how money currently derived from the levy is allocated and used, says Electronic Toll Collection (ETC) company.

Currently, the fuel levy is the fourth highest income stream for government and provides over 5% of national tax revenue. Fuel levies also make up 70% of all road user generated income for the state.

“The fuel tax in itself is not enough to fund South Africa’s roads at the moment. That’s the reality,” said economist, Mike Schüssler, who moderated the Transport Forum Working Group event in Johannesburg recently.

Schüssler said that if the country were to double its current spend on roads and public transport and finance it through the fuel levy, the current fuel tax of R3.15 per litre of petrol would have to more than double to R7.50 per litre. This massively inflated figure excluded a contribution to the Road Accident Fund.

According to the Automobile Association, consumers pay R5.34 in indirect taxes for every litre of petrol bought and R5.19 for every litre of diesel:

  • R3.37 (petrol) and R3.22 (diesel) for the general fuel levy;
  • R1.93 for the RAF levy; and
  • 4 cents for customs and excise taxes for petrol and diesel.

And from April, the general fuel levy will increase by 15 cents per litre, while the Road Accident Fund (RAF) levy will rise by 5 cents per litre.

Dr Paul Nordengen, manager of network asset management systems at the CSIR, told delegates at last week’s event that while road funding is critical for the future of South Africa’s development, the fuel tax is unlikely to exist in the future.

He also took issue with how government allocates the funds it receives from the fuel levy, ETC said.

“The ring fencing of roads is a decision made by national treasury. That decision was made several years ago. All money generated from fuel taxes goes into the pot. The advantage of toll fees is that that money is specifically used for roads,” Nordengen said.

Comparing road use to water, electricity and mobile data consumption, he said South Africans were prepared to pay for these basic services, yet
didn’t want to pay for roads.

He explained that interventions to reduce the demand for road funding included periodic maintenance and rehabilitation of vehicles; the movement of freight from road to rail; improved public transport; reductions in crashes, incident rates and breakdowns; the
reduction of heavy vehicle overloading and the encouragement of road-friendly heavy vehicles.

Gavin Kelly, acting CEO of the Road Freight Association (RFA), said as soon as the country progresses to fully electric vehicles, the fuel levy will disappear. “Somewhere down the line, the fuel levy is going to decrease dramatically,” he said.

“The fuel levy is feeding many other things, not just roads. The road funding method we need has to be ring fenced. If we are charging users of the roads, then the money taken from those users must go to roads, it cannot go to something else.”

Kelly said that some provinces who receive an allocation to deal with their roads, do not spend it on roads. Some provinces even give their road allocation funds back to treasury at the end of the year, he said.

“The Department of Transport has tabled a Draft Bill to establish a Single Transport Economic Regulator,” Kelly said.

“One of its functions is to try to ascertain how the money from the fuel levy is being spent, that it is spent correctly and that the levies being charged by various state-owned entities are just, valid and supported. One of those entities is Sanral,” he said.

“Allocation is highly complex and the process lacks transparency,”” said professor Stephan Krygsman from transport economics at Stellenbosch University.

“We should pay for roads. The question is how much and how to do it. Paying too much tax erodes development. He said that government is also proposing to introduce a Congestion Tax for South Africa.

“Applying the user pay principle does not guarantee fiscal neutrality. As used by government, it will lead to a funding deficit,” he warned.

Read: This is why you are now taxed R265 when you fill up at the petrol station

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Fuel tax is not enough to fund South Africa’s roads