Bad news as petrol tax hikes loom
J– Finance Minister Enoch Godongwana will likely announce increases to the general fuel levy and the road accident fund (RAF) levy in his budget speech later this month.
This is feedback from financial services firm PwC, which outlined the minister and National Treasury’s difficult position with the 2024 budget.
In its 2024 budget predictions, PwC expects the minister to hike the general fuel levy and the RAF levy in line with inflation.
In the last two budgets, no increases were made in light of high fuel prices and concern from the National Treasury that it would increase the pressure on households recovering from the pandemic.
Prices
Moreover, a revenue windfall in the form of higher commodity prices and thus, higher corporate income taxes gave the government room to keep the General Fuel Levy and RAF Levy flat.
This was never likely to last as the commodity-generated windfall was only temporary, and the government’s reliance on fuel levies for revenue meant it was unlikely to avoid increases in the future.
The general fuel levy alone is the fourth largest revenue item in the government’s budget. It has become an increasingly important source of revenue in the last decade, contributing around R90 billion in tax revenue.
PwC explained that, because of this, government is not in a position to continue to provide significant relief from this tax due to its deteriorating fiscal position and lacklustre revenue growth.
As fuel prices have largely stabilised, PwC expects government to begin to introduce the regular annual increase in fuel levies in 2024.
The RAF levy is in a similar situation, which had no increases in 2022 and 2023 to support households and the economy. PwC expects this levy to increase in line with inflation in this year’s budget.
Increase
Levies charged on the price of petrol and diesel at the pump make up a significant portion of the fuel price in SA, meaning that an increase in these levies will increase the price at the pump.
Taxes and levies comprise 28 per cent of fuel prices in SA, with only 53 to 55 per cent being determined by fuel importing costs.
Thus, fuel prices in SA are much higher than expected and even higher than what citizens in neighbouring countries pay for imported fuel from SA.
There are four main components: General Fuel Levy
RAF Levy
Basic fuel price
Wholesale and retail margins
The basic fuel price is the largest component at 53 to 55 per cent, which, according to the AA, equates to roughly R12.78 per litre, depending on the grade of petrol.
This is the price determined by the cost of importing oil from international producers, including additional costs such as insurance, storage, and transport. The oil price and the USD/ ZAR exchange rate heavily influence the basic fuel price.
Wholesale and retail margins make up roughly 15 per cent of the fuel price, costing R3.49 per litre. This is influenced by the costs of transporting fuel within SA, storing it, and pumping it.
The two levies on fuel make up a significant 28 per cent of the fuel price, meaning that government-imposed levies cost South Africans R6.51 per litre of petrol.
Seventeen per cent is due to the general fuel levy, which equates to R3.96 per litre. This levy goes directly to the National Treasury and can be used for any purpose the government considers fit.