The ‘special tax’ that could cut petrol prices to under R15 a litre in South Africa

 ·17 Jun 2024

The South African government could reduce petrol prices by imposing a special tax on monopoly companies—among other things—to make up the fuel levy shortfall, which could lead to a price reduction of around 35% per litre, if not more.

This information comes from the People Against Petrol and Paraffin Price Increases (PAPPPI), who have suggested that there are multiple solutions to tackle the high prices that the government, whether out of incompetence or malice, is not pursuing.

For over a year now, South African motorists have been paying well over R20 per litre to fill up their cars, and the PAPPPI noted that these ever-higher increases are catastrophic for all South Africans.

The group noted that when fuel prices go up, everything goes up—especially the price of diesel, as food prices and the cost of living also go up, irrespective of whether you have a car or not.

South Africa’s fuel prices are heavily influenced by international factors like the cost of crude oil and the rand/US dollar exchange rate, both of which have performed poorly in recent months.

Considering this, the PAPPPI noted that South Africa should follow the example of India.

India has shifted its focus away from OPEC nations, who deliberately manipulate oil prices by cutting output, and has started to purchase oil from other countries that offer more competitive rates.

The PAPI suggests taking advantage of the BRICS pact and starting to purchase oil from other countries that offer more competitive rates, such as Russia and Iran.

The second is to re-commission many of the refineries that closed their doors in recent years, reducing the reliance on imported fuel by producing a portion locally.

The last is to remove taxes and levies imposed on fuel at the pumps and consider other alternatives to maintain this revenue. PAPPPI suggests imposing a ‘special tax’ on the monopoly industry on the JSE, such as Sasol and the like, which garner huge profits using this country’s resources.

“The revenue from fuel levies doesn’t need to come from motorists. It can come from a special tax on the monopoly industry that sits on the JSE,” it said.

This would immediately reduce the price of petrol in this country by 35%, it added.

As of June 2024, the cost of the cheapest petrol (93 unleaded) and diesel (0.05% wholesale) is R23.91 and R20.96 per litre, respectively—according to the PAPPPI, this could come down to around R15 per litre.

Efficient Group economist Dawie Roodt.

There’s an easier answer

Economist Dawie Roodt told BusinessTech that the answer to dropping the fuel prices in South Africa is quite simple and less complicated than the PAPPPI makes it out to be.

He said the tax isn’t the problem. It’s the fact that the state spends too much money and desperately needs the high amount of revenue that comes from fuel levies.

“The state is far too big and highly incompetent, which is costly. Effective management and cost-cutting within the fiscus could easily remove the need for the current levels of the fuel levies, which would cut fuel prices in the country,” he said.

Commenting on the PAPPPI’s recommendations, he added that reopening refineries may have potential and would impact the cost of petrol by reducing the reliance on imported fuel.

However, he added that importing from BRICS nations such as Russia and Iran would come at a cost, while a special tax on monopoly industries would be ridiculous and would simply chase those companies out of the country.

“It is quite simply a very bad idea to impose a tax on companies,” said Roodt.

He explained that private companies in South Africa are highly taxed—higher than in most other countries—and this added tax would just signal their exit from the country. Sasol is already a good example.

Roodt also highlighted that companies are actively delisting from the JSE, so if anything, South Africa needs to reduce taxes on companies.

Commenting on the other alternatives, he said, “Of course, we could get our oil from Russia or Iran, but it would come at a political cost.

“We also can’t automatically assume it would be cheaper for South Africa to buy from those countries. This is because the country would have to say more for things like insurance, so it’s a bad idea,” said Roodt.

On the other hand, Roodt said the reopening of refineries in South Africa would potentially work. However, it would be incredibly difficult.

This is because South Africa would struggle to find someone willing to invest in such activities and have the skills to operate the refineries.

Alternatively, if it were run by the state, it would follow many other state-owned entities and would become a complete disaster, said Roodt.

Despite this, he said if South Africa could manage to reopen these refineries and add value to South Africa, it would be the best option among the PAPPPI’s recommendations.

Read: R1.50 petrol price joy for South Africa

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