Big petrol price change planned for South Africa

 ·24 Jul 2024

President Cyril Ramaphosa said the fuel price formula will be reviewed to identify where prices can be reduced, which can significantly impact petrol and diesel prices in South Africa.

In his opening address to parliament, Ramaphosa said a key priority for the Government of National Unity (GNU) is to tackle poverty and the high cost of living.

“An effective, integrated, and comprehensive poverty alleviation strategy is necessary to protect and support society’s most vulnerable,” he said.

The first intervention the president mentioned to protect the poor is to the basket of essential food items exempt from VAT.

The second is to undertake a comprehensive review of administered prices, including the fuel price formula, to identify areas where prices can be reduced.

Ramaphosa did not provide details on what changes may be implemented to the fuel price formula. This may be because of the complexity associated with the issue.

South Africa’s fuel price is comprised of many elements, some of which make petrol and diesel more expensive than in neighbouring countries.

The fuel price is calculated using four main elements:

  • The General Fuel Levy (GFL).
  • The Road Accident Fund (RAF) Levy.
  • The basic fuel price, including freight and insurance costs, cargo dues, storage, and financing.
  • Wholesale and retail margins and distribution and transport costs.

Increases in the GFL and RAF levies are usually announced in February during the Finance Minister’s annual Budget speech and come into effect in April.

With effect from 03 April 2024, the fuel levy in the price structure of petrol and diesel increased to 396.0 c/l and 384.0 c/l, respectively.

The road accident fund levy in the price structure of both petrol and diesel remained at 218.0 c/l.

Furthermore, finance minister Enoch Godongwana announced increases to the carbon fuel levy of 1 cent per litre on petrol and 3 cents per litre on diesel.

Petrol and diesel price changes are implemented on the first Wednesday of every month and are determined by two main factors:

  • The Rand/US Dollar exchange rate, which determines how fuel is purchased.
  • International petroleum prices, which determines how much the fuel costs to purchase.

The basic fuel price is calculated based on costs associated with shipping petroleum products to South Africa from the Mediterranean, Arab Gulf, and Singapore.

These costs include insurance, storage, and wharfage – the cost to harbour facilities when off-loading petroleum products into storage.

It also accounts for transport costs from the harbour to inland areas, customs and excise duties, retail margins paid to fuel station owners, and secondary storage costs.

These are hard costs, which means that Ramaphosa’s promised fuel price formula review will not impact these costs.

Therefore, it leaves the two main taxes, the general fuel levy and the road accident fund levy, to reduce petrol prices.

Big changes are unlikely

President Cyril Ramaphosa

Charles de Wet, an executive at ENS Africa’s Tax Practice, explained that fuel taxes are a gold mine for the government. Fuel taxes are easy to collect and impossible to evade.

If all taxes are considered, including the Department of Mineral and Petroleum Resources’ slate levy and petroleum products levy, R6.40 per litre of petrol goes towards taxes.

The fuel levy alone generated R93.37 billion in revenue in the 2023/24 financial year, making up around 5% of the government’s total tax revenue.

The Road Accident Fund (RAF) levy, used to fund the RAF, contributes around R48 billion to state coffers.

De Wet said fuel taxes have become such a large component of the fuel price because the government has poorly allocated money.

“What we have seen previously is that the fuel levy has been used to boost government revenue and try to balance the budget,” he said.

When the levy was first implemented, it was intended to fund the maintenance of road infrastructure.

However, it was swiftly moved into the general revenue account and can now be used however the government sees fit.

This tax’s importance in government revenue and the ease with which it can be collected mean that the state is unlikely to reduce this levy.

De Wet said the general fuel levy may be reduced from its current levels. However, this is very unlikely to be touched in the short term.

It is a significant portion of the total fuel tax levied in South Africa, but it is not the only levy imposed at the pump.

It is unique because its revenue goes into the general revenue account. In comparison, the Road Accident Fund (RAF) levy goes straight to the RAF to fund its operations.


Read: How much money petrol attendants earn in South Africa in 2024

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