Petrol price should be under R20 per litre in South Africa – here’s why

Petrol taxes and retail margin increases have beaten inflation by R3.50 over the past 16 years, meaning the price of petrol should be under R20.00 per litre as of August 2024.

This can be shown by looking at the crude oil price per litre and the inland unleaded 95 price per litre in South Africa from January 2008 to August 2024.

Analysing more detailed data reveals that although South Africa’s fuel prices used to be closely linked to oil prices, they have now significantly diverged due to substantial increases in taxes and margins.

During the period under review, South Africa’s fuel price add-ons have significantly increased over the past 16 years, with the total tax per litre increasing from R1.74 per litre in 2008/09 to R6.18 per litre in 2024/25.

This represents a growth of around 255%. This figure includes the Road Accident Fund (RAF) levy, general fuel levy (GFL), and customs and exercise tax (R0.04).

According to data from the Organization Undoing Tax Abuse (Outa), in 2008/09, South Africa’s RAF levy and GFL were R0.47 and R1.27, respectively.

However, they have since risen to R2.18 and R3.96.

Even bigger increases have been noted in the increases in retail margins.

The retail margin on petrol prices in South Africa is the portion of the petrol price that is allocated to fuel retailers.

This margin covers the costs of operating the service stations, including salaries, rent, and other overheads, as well as the retailer’s profit.

The retail margin is determined by the Department of Mineral Resources and Energy (DMRE) and is regulated.

The retail margin on South Africa’s fuel prices has also increased significantly, growing from R0.65 per litre in 2008/09 to R2.86 per litre as of August 2024. This is an increase of nearly 340% over 16 years.

To put these increases into perspective, general inflation over the same period increased by 133%, meaning the price of petrol should be R3.50 cheaper.

If increased with inflation, taxes should be around R4.05 per litre while margins should be around R1.51.

This means the price of petrol, including the add-ons, should be close to R19.60 a litre at the pumps.

According to Economist Dawie Roodt, these above-inflation increases are a result of incompetence.

He said the tax isn’t the problem. The problem is that the state spends too much money and desperately needs the high revenue from fuel levies.

“The state is far too big and highly incompetent, which is costly. Effective management and cost-cutting within the fiscus could easily remove the need for the current levels of the fuel levies, which would cut fuel prices in the country,” he said.

Considering the burden of these taxes, in his opening address to parliament earlier this year, Ramaphosa said a key priority for the Government of National Unity (GNU) is to tackle poverty and the high cost of living—including revising the fuel levies.

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.

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, which funds the RAF, contributes around R48 billion to state coffers.

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.

Despite Ramaphosa’s promises, some experts believe that the tax’s importance in government revenue and the ease with which it can be collected mean that the state will find it extremely difficult to reduce this levy.

Read: The hidden ‘luxury’ tax South Africans pay on all cars over R250,000