R6.40 per litre petrol price cut in South Africa – and lost taxes

On Tuesday, Mineral and Petroleum Resources Minister Gwede Mantashe said petrol and diesel should cost R14 per litre. However, there is no clarity on what will make up for the lost taxes.

Mantashe told delegates at the 2024 Africa Oil Week Conference that his department is in discussions with the National Treasury to decrease fuel prices.

These discussions focused on making life more affordable for South Africans and include reducing administered prices.

Reducing administered prices aims to lower electricity and fuel prices as part of a bigger initiative to address high living costs.

“The state must intervene to bring energy prices down in the interest of the South African community,” Mantashe told delegates.

The discussions include whether it is wise to include the fuel levy and road accident fund levy in the price of petrol and diesel.

Taxes and levies account for R6.40 of the price of a litre of petrol and slightly less of the price of a litre of diesel.

The R6.40 is mainly because of the R3.96 per litre fuel levy and the R2.18 per litre Road Accident Fund (RAF) levy.

Mantashe argued that these levies distort the price of fuel. “Let’s find a formula to separate the price of fuel and the levies. Let’s make it visible,” he said.

Most South Africans would welcome a reduction in the price of petrol and diesel. However, there is a challenge.

The government collects a lot of money through levies and taxes on fuel. It is also a highly efficient way to collect taxes, as it is nearly impossible to evade.

Renowned economist Dawie Roodt previously explained that the fuel levy is a “less bad” tax than other taxes.

“A tax on petrol is less damaging to the economy than an increase in company or personal income taxes,” he said.

The government collected R93 billion from the general fuel levy in the past financial year. Over the past decade, it has collected R730 billion.

Should the government reduce the fuel levy or other fuel taxes, it must find the money elsewhere. This can be more damaging to the economy than high petrol prices.

Expert opinions on petrol price plans

Two experts, Automobile Association spokesperson Layton Beard and Rand Merchant Bank’s Chief Economist Isaah Mhlanga, shared their opinion with The Money Show.

Beard said Mantashe made it sound like the Department of Mineral and Petroleum Resources wants to remove taxes and levies from the fuel price to make it more affordable.

Lower fuel prices will positively affect the economy. People will move around more and the input costs for many products will be much lower.

However, Beard said cutting the petrol price to R14.00 means that the government will have to raise other taxes.

“I can see National Treasury officials pushing back hard, saying fuel levies are one of the biggest taxes they collect,” Beard said.

He said the state generates around R100 billion through the general fuel levy and another R50 billion through the road accident fund levy.

“If the government removes these two levies from the petrol and diesel price, how will it fill that gap?” Beard asked.

He said the discussions regarding administered prices most likely centre around how they can collect the money through other means.

Despite this challenge, Beard said South Africans are angry about paying the fuel levy because they do not see the money being well spent.

“If potholes were fixed, roads worked, and there was infrastructure development, people would not have as much of a problem to pay the fuel levy,” he said.

Another problem is widespread corruption, which many people feel is causing money to disappear into the pockets of connected people.

Rand Merchant Bank’s Isaah Mhlanga said the government is already struggling to get enough money for all its projects.

“It is almost unimaginable that the National Treasury will be in a position to say it will give up R150 billion when they need more money,” he said.

He added that the government would have to raise the money through tax. “Shifting the burden from one consumer to the next does not resolve the underlying issue,” he said.

Mhlanga expects the discussions to centre around a more efficient, market-related fuel price formula rather than completely eliminating fuel levies and taxes.

Read: Big announcement about petrol and diesel prices in South Africa