Mineral and Petroleum Resources Minister Gwede Mantashe told the Africa Oil Week conference in Cape Town this week that fuel prices should be R14 a litre instead of R20 and discussions are taking place with National Treasury on how this can be done.
Distortions introduced by two fuel taxes – the general fuel levy (GFL) and the Road Accident Fund (RAF) levy – have pushed prices up to around R20 a litre.
Money from the GFL goes to the National Revenue Fund for spending by the national government, with a portion allocated to the eight major metros.
More than 90% of the funds in the Road Accident Fund come from the RAF levy, which is used to settle claims from victims of car accidents.
These two levies bump up the price of petrol by R6.14 a litre, and diesel by R6.02 a litre – accounting for around 30% of the retail fuel price.
Mantashe said calculations done by his department show that prices should be R14 a litre, not R20.
He added that unless these levies are ring-fenced, it will not be possible to drop fuel prices.
Discussions are currently taking place with the National Treasury on the impact of the GFL and general living standards. These two levies were the focus of discussions with the National Treasury, though other components of the fuel price are also being looked into.
What would replace the levies?
The GFL contributes close to R100 billion a year to the fiscus, and the RAF levy about R20 billion, which leaves a huge hole for the Treasury to fill should it decide to scale back or eliminate these.
“We’ve been asking for a review of [the] fuel pricing structure for many years,” says Automobile Association spokesperson Layton Beard.
“We’re not inherently opposed to the scrapping of these taxes, but if we do that, what then?
“Where are we going to find the roughly R120 billion currently generated by the fuel and RAF levies?” asks Beard.
“We would welcome a fuel price of R14 a litre, it would be amazing. The question then arises will there be a trade-off whereby other taxes will be raised? Would this mean an increase in Vat or higher corporate and personal taxes. These are discussions that we need to be having as a country.
“Minister Mantashe’s statement is welcome but vague on details, and it’s the details that are important.”
Fuel levies and economic growth
The general fuel levy is an excise tax charged on petroleum products such as petrol, diesel and biodiesel in terms of the Customs and Excise Act. Some academic studies have explored the link between fuel levies and economic growth and found it could depress growth in the long term.
Finance Minister Enoch Godongwana put a halt on increases in the GFL in the 2024/5 budget, resulting in a R4 billion saving for consumers.
The government has made no changes to the GFL or RAF levies since 2022.
The following table shows the makeup of the retail and wholesale prices of fuel.
The retail and wholesale margins account for 17% of the retail price of petrol, but close to half the price is made up of components administered by the government.
Some have proposed a fully deregulated market for fuel, which would likely mean substantial variability in administered margins such as the wholesale and retail margin, as well as other components that currently make up the fuel price. This is however unlikely for the foreseeable future.
Figures compiled by Stats SA show that higher fuel prices exert upward pressure on consumer inflation. Conversely, lower fuel prices exert downward pressure on inflation, as happened during Covid when demand for fuel plunged. Fuel currently has a nearly 5% weighting in the consumer price index.
“There needs to be discussion around the current way the fuel price is determined and whether all the line items are necessary,” says Beard.
