South Africa could go off script with petrol taxes next week: economist

While the National Treasury typically announces increases in fuel taxes its February Budget, this year could see a shift in trends, says Jeff Schultz, senior economist of BNP Paribas South Africa.

“Fuel and road accident fund levies have historically seen above-CPI increases. However, this time could prove different given finance minister Godongwana’s assertion that the structure of South Africa’s fuel price should be re-assessed as consumers are grappling with record fuel prices and taxes and levies currently accounting for a third of domestic fuel costs,” Schultz said in a research note on Wednesday (16 February)

“Any decision will have to be carefully considered, though, given the general fuel levy alone brings in more than 1% of GDP in annual revenues, while the road accident fund has a growing claims backlog.”

The Automobile Association (AA) of South Africa has warned the government against any planned fuel tax increases in its 23 February budget, which it says will be particularly damaging following record-high increases.

The General Fuel Levy is currently pegged at R3.93 per litre (up from R3.77 in 2021) and the RAF levy at R2.18 per litres (up from R2.07 in 2021). Combined they add R6.11 to every litre of petrol and diesel sold in the country.

Any adjustments announced by the finance minister in the February Budget Speech are implemented annually in April.

The AA said any adjustments to the collection rates of these levies will have severe consequences for consumers and they should not be altered.

“Our country faces enormous and complex economic challenges. High fuel prices are adding to these challenges and instead of accepting the current model, we must seek solutions that benefit consumers, not place them in more financial distress. One immediate solution for us, for instance, is to review the funding of the poorly managed Road Accident Fund (RAF).

“Our reliance on the RAF is a direct result of South Africa’s poor road safety and that’s where more attention needs to be given for a long-term solution,” it said.

Godongwana has himself called for changes to how the fuel price is calculated in South Africa as the country’s motorists pay record-high prices.

Answering in an oral Q&A session in parliament in December, Godongwana said that he was concerned about these increases to the extent that government may have to intervene and reform the price of petrol.

Energy minister Gwede Mantashe confirmed that the government was considering several ways to lower the cost of fuel – including separating the fuel levy from the basic fuel price.

“At this point in time, a big part of the price increases is the levy,” he said. “The way of countering price increases is an urgent matter for review, and that is on the table.”

Civil society groups and trade bodies have been pushing for a review of the country’s petrol price for several years – with specific concerns raised about taxes attached to the fuel price, which now make up as much as 50% of the total cost.

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