Bad news for fuel taxes in South Africa
The Motor Industry Staff Association (Misa) has noted concern over the delay in revising the fuel price methodology, despite Ramaphosa’s recent promises in his address at the formal opening of Parliament.
It has been over two years since the now defunct Department of Mineral Resources and Energy (DMRE) said it had “commenced” the process of reviewing the country’s fuel price calculation in the face of record-high fuel costs that plagued motorists at the time.
In 2022, petrol prices were well over R20 a litre, with the record-breaking price hitting R26.74 per litre during July.
Finance Minister Enoch Godongwana proposed addressing the high cost of living by discussing the revision of the General Fuel Levy (GFL), one of the highest taxes on fuel prices.
In April 2022, he mentioned that the government was working towards removing the GFL entirely.
“We are planning to remove the fuel levy completely, but it cannot be done in one financial year as it would disrupt the fiscal framework by R90 billion,” he said.
This substantial amount represents the revenue the government would lose if the GFL is completely removed from the current fuel pricing structure.
However, the government suggested that this loss could be offset by imposing additional taxes on vehicle license renewals.
Some recommendations were made to change the method of calculating industry margins, but industry stakeholders criticised this as a short-sighted approach to reducing the country’s high fuel prices.
Industry margins cover retail and wholesale margins, as well as storage and distribution costs.
hey also include expenses such as employee salaries and the transportation of petrol and diesel from the country’s ports to its inland distribution hubs.
Considering that industry margins make up a small portion of the fuel price structures, less than 10%, the Road Freight Association suggested that the DMRE should focus instead on investigating excessive taxes and levies, which make up about 30% of the fuel calculation.
This would have a more meaningful impact on fuel pump prices.
MISA Operations CEO Martlé Keyter stated that since the initial announcement was made about two years ago, the association has received no response from the DMRE and National Treasury.
Keyter mentioned that MISA was invited to participate in the fuel price review in July 2022, but according to reports from Engineering News, no progress was made beyond this point.
In October 2023, the DMRE confirmed to TopAuto that it had not yet begun the process due to internal budgetary constraints. The department stated that it was seeking approval to utilise the Equalisation Fund for the review and is awaiting the National Treasury’s approval.
Therefore, the department hopes to start the review in 2024 once it receives the go-ahead from the Treasury.
However, Misa is concerned that under the new Government of National Unity (GNU), which splits the previously known DMRE into two entities – the Department of Mineral and Petroleum Resources and the Department of Electricity and Energy – the review will be further delayed, and the current level of taxes and other input costs will remain the same.
This is despite the recent promise by Ramaphosa on Thursday (18 July) that the GNU has committed to tackling the rising cost of living for South Africans – which will include adding more essential items to the basket of goods exempt from VAT and reviewing the petrol price formula.
He said the GNU would undertake a “comprehensive review of administered prices, including the fuel price formula”.
Some of the proposed changes include:
- The possible introduction of a price cap;
- A proposal to stop publishing guidance on diesel prices;
- A process to review the Regulatory Accounting System (RAS).
Treasury previously said that a review of the RAS could result in a significant decrease of R1.03 cents/litre by 2028.
However, this will take significantly longer to implement than other measures and investigations need to take place to fully understand the changes that can be implemented.
Ramaphosa also added that these proposals are part of the new government’s main strategies for the next five years, which could be too long.
“Our dire economic situation requires swift responses. We can’t waste another two years. South Africans need to know if the high fuel levies and taxes can be justified,” said Keyter.
“We want to be a part of the solutions to find another source of income for government, other than fuel.”
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