Warning for petrol prices in South Africa

The reduction in petrol prices this month has led to some much-needed gains in South Africa’s transport sector, but the good times may be cut short by an impending tax hike this week.

Despite the volatile and uncertain global landscape, South African sentiment has improved over the past week, with 11 out of 20 sectors closing positively on Friday.

According to Daniel Wesonga, Senior Sales Manager at trading platform Pepperstone, the transportation sector led this, which gained on the JSE by 1.17% following a small cut to fuel prices on 5 March.

Beyond the boost to businesses, the fuel price cuts have also supported market optimism, Wesonga said.

“While fuel price reductions may not provide significant relief to consumers, they benefit businesses that depend on transport costs, particularly in the industrial and consumer sectors.

“This could improve profitability, particularly for firms with high logistics expenses,” he said.

However, inflation and cost-of-living pressures may still limit the positive impact on consumer spending.

The direct boost for businesses may also be short-lived, with economists warning of tax pain on the cards for this week.

Economists and Nedbank say they expect Finance Minister Enoch Godongwana to announce fuel tax hikes when he presents his revised budget on Wednesday, 12 March.

This would mark a reversal of the initial budget’s intended general fuel and Road Accident Fund levy freezes.

In the original budget, Godongwana wanted to hike VAT to 17%. To compensate for this broad adjustment, the minister would have announced some smaller tax relief measures.

This included no hikes for fuel taxes, small (below-inflation) changes to the tax brackets, and a broadened basket of zero-rated VAT items.

According to Nedbank, with the VAT hike largely off the table, other tax measures will have to be implemented to make up the difference.

Reports indicate that there will likely still be a VAT hike in the new budget, but this will be limited to 0.5%pts—nowhere near enough to raise the projected R60 billion in additional revenue.

“We expect the National Treasury to raise the fuel levy after it was left unchanged in the initial budget to compensate for the foregone revenue due to the lower VAT increase,” it said.

“Other revenue adjustments likely will be limited.”

The fuel and RAF levies have not been adjusted since April 2022. Many economists expected the levies to be hiked in the original budget, with the proposed VAT hike blindsiding the market.

There might still be good news

If Godongwana opts for fuel tax hikes, they will take effect on 1 April 2025 and will be effective when fuel prices are adjusted on the first Wednesday of the month (i.e., 2 April 2025).

However, this does not necessarily mean that fuel prices will increase in April. Depending on the scale of the tax hikes, it may just mean a smaller price cut.

According to the latest data from the Central Energy Fund (CEF), local fuel price recoveries are in the black, with a projected cut of between 80 and 90 cents per litre for petrol and around 80 cents per litre for diesel.

If current market conditions hold through to the end of the month, and additional fuel levies are contained below those amounts, motorists could still see a cut in April.

On the flipside, however, if market conditions deteriorate or the finance minister announces significant hikes to fuel taxes, then the picture will turn sour for motorists.

As things stand, the market remains uncertain.

Oil prices are under pressure from US president Donald Trump’s trade war hitting demand, while a glut on the supply side is keeping prices down.

Oil is currently trading around $70 a barrel, having fallen below this level in recent sessions.

The rand/dollar exchange rate, meanwhile, has also been volatile, given the uncertainties that persist around Trump’s chaotic governance style and local problems like load shedding.

Fuel price recoveries are currently at the whims of the global oil market—with the kicker coming on Wednesday, 12 March, when the finance minister tables the tax changes for 2025.