Petrol price cut plan in South Africa

President Cyril Ramaphosa’s plan to cut petrol prices through lower levies will likely come to fruition in 2025.

Ramaphosa first announced the plan to change how fuel prices are calculated during his Opening of Parliament Address in July 2024.

He explained that the Government of National Unity (GNU) will review the formula to identify ways to reduce petrol and diesel prices.

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

“We will undertake a comprehensive review of administered prices, including the fuel price formula, to identify areas where prices can be reduced.”

A few months later, Minister of Mineral and Petroleum Resources Gwede Mantashe reiterated the plan to make petrol cheaper.

He told delegates at the 2024 Africa Oil Week Conference that his department was discussing lowering the fuel price with the national treasury.

A Ministerial Task Team to review the fuel pricing regime had been established, which Mantashe said “must be given a chance to do its work”.

The Minister said the discussions centre around changes to the levies charged at the pump, such as the General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy.

A South African Reserve Bank (SARB) report found that administered elements of the fuel price have accounted for between 40% and 60% of the final retail petrol price.

“The price of fuel is part of the cost of living. When the fuel price increases, the cost of living in South Africa increases. This is not good for society,” he said.

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

Mantashe said the levies charged on fuel distort the petrol and diesel prices in South Africa, with a more accurate price of around R14 per litre.

He also highlighted that his department removed a 15% premium from the freight rate in 2023 and repealed the 10 cents per litre demand-side management levy on ULP 95.

Reducing fuel levies is easier said than done

Comments from politicians on reducing fuel levies to make petrol and diesel prices sound good and gain support from citizens who like lower prices.

However, there is a problem. These are nothing other than taxes which the government need to support its social initiatives.

The National Treasury will likely fiercely resist changes to the fuel price formula due to the implications for government revenue.

The government expects to receive R93 billion in revenue from the General Fuel Levy (GFL) in the current financial year, making a significant contribution to the fiscus.

Fuel taxes are also relatively easy to collect and have a broad base as every South African filling up has to pay them.

AA spokesperson Layton Beard explained that if the GFL and RAF Levy were scrapped, the government would have to look for alternative ways to generate R93 billion in revenue.

Beard said this may result in tax increases in other areas, such as VAT, to compensate. These increases would negatively impact South Africans more than the GFL.

This is a major hurdle for the government to overcome regarding changes to the fuel price in South Africa, and it is unlikely it would give up R93 billion in revenue.

The Organisation Undoing Tax Abuse (OUTA) said the government has tried this before and failed to make any substantial changes to the fuel price formula.

The organisation echoed Beard’s concerns that changes to the GFL and RAF Levy would require the government to increase taxes.

It said VAT and PAYE are the most likely candidates to make up the shortfall, which will not be popular among citizens.