President Cyril Ramaphosa has announced plans to review South Africa’s fuel price formula in a bid to alleviate the financial strain on consumers grappling with high petrol and diesel prices. In his recent address to parliament, Ramaphosa underscored the Government of National Unity’s commitment to addressing poverty and the soaring cost of living.
Ramaphosa emphasized the need for a comprehensive poverty alleviation strategy, stating, “An effective, integrated, and comprehensive poverty alleviation strategy is necessary to protect and support society’s most vulnerable.”
The president outlined two initial measures aimed at easing the burden on low-income households. Firstly, he proposed expanding the basket of essential food items exempt from VAT. Secondly, he highlighted the urgent need for a thorough review of administered prices, including the fuel price formula, to identify potential areas for reduction.
While specifics regarding changes to the fuel price formula were not disclosed due to the complexity of the issue, Ramaphosa acknowledged that the current structure includes various components contributing to higher fuel costs compared to neighboring countries.
The calculation of South Africa’s fuel price incorporates four primary elements: the General Fuel Levy (GFL), the Road Accident Fund (RAF) Levy, the basic fuel price inclusive of freight and insurance costs, and wholesale/retail margins along with distribution and transport expenses.
Recent adjustments in levies underscore the impact on fuel prices. Effective from April 3, 2024, the fuel levy for petrol and diesel rose to 396.0 c/l and 384.0 c/l, respectively. The RAF levy remained steady at 218.0 c/l. Additionally, Finance Minister Enoch Godongwana announced incremental increases to the carbon fuel levy.
Monthly adjustments to petrol and diesel prices are determined by fluctuations in the Rand/US Dollar exchange rate and international petroleum prices. The basic fuel price, influenced by shipping costs from various regions and associated expenses, remains a fundamental component in the price structure.
Despite the challenges posed by these fixed costs, Ramaphosa’s commitment to reviewing the fuel price formula focuses primarily on potential reductions in the GFL and RAF levies, which represent significant components of the total fuel taxes collected by the government.
Charles de Wet, an executive at ENS Africa’s Tax Practice, noted the substantial role of fuel taxes in government revenue, highlighting the challenge in reducing these levies due to their reliability and ease of collection. He emphasized that while adjustments to the general fuel levy might be considered in the future, substantial reductions in the short term are unlikely.
Fuel taxes, including the slate levy and petroleum products levy, collectively contribute approximately R6.40 per litre of petrol towards government revenue. The fuel levy alone generated R93.37 billion in the 2023/24 fiscal year, constituting a notable portion of the government’s total tax revenue.
De Wet underscored the historical use of the fuel levy to bolster government finances rather than solely funding road infrastructure maintenance, a departure from its original purpose.
While the review of South Africa’s fuel price formula aims to mitigate the economic strain on consumers, the enduring significance of fuel taxes in government revenue suggests that substantial reductions, particularly in the short term, remain unlikely.
In conclusion, while President Ramaphosa’s initiative to review the fuel price formula marks a pivotal step towards addressing consumer concerns over high fuel costs, the intricate balance between economic impact and fiscal policy remains a critical consideration for the South African government.
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