The cost of South Africa’s petrol and diesel price relief

The National Treasury’s announcement of temporary fuel price relief in April, by halving the levy charged on petrol and diesel, will come at a cost of between R5.25 billion and R6 billion to the fiscus.

Luckily, the news of this relief coincided with the announcement that the South African Revenue Service (SARS) collected far more in tax revenue than was budgeted for in the 2025/26 financial year.

Therefore, South Africa’s planned fiscal consolidation is not expected to be fully interrupted by the fuel levy reduction.

Momentum Investments economists Sanisha Packirisamy and Tshiamo Masike explained that, as a net importer of fuel, South Africa is a price-taker in the global oil market.

This is why the current Middle East war is having such a significant impact on fuel prices in the country.

Packirisamy and Masike explained that, although only around a quarter of South Africa’s crude oil imports originate directly from the Persian Gulf, the country has become increasingly reliant on diesel and petrol shipped from Gulf refining hubs.

This has become particularly salient following the shutdown of several refineries in South Africa, which has left the country with only two operational refineries. 

“As a result, any disruption to shipping through the Strait of Hormuz could still have meaningful knock-on effects for fuel availability and prices in South Africa,” they said.

The effect of the war on the Strait of Hormuz, which has been effectively closed since the conflict began, was clearly seen in South Africa in the form of fuel price increases for April.

Due to higher global oil prices and a weaker rand, the Central Energy Fund signalled an under-recovery of around R5.82 per litre for petrol and about R10.27 per litre for diesel in April.

This would have significantly increased the price South African motorists pay at the pumps, especially as it coincided with a fuel price levy hike scheduled to take effect at the start of the month.

However, on 31 March, Finance Minister Enoch Godongwana announced a temporary R3 per litre relief on the fuel levy for April, with additional measures being considered for May and June if pressures persist.

Packirisamy and Masike said this relief for April will come at a cost of around R5.25 billion to the fiscus.

The table below, taken from the 2026 Budget, shows the total combined fuel taxes on petrol and diesel that the National Treasury expects to collect per litre in the 2026/27 fiscal year.

South Africa’s fuel price levy

In South Africa, nearly a third of the fuel price motorists see at the pumps is made up of taxes, which include the General Fuel Levy (GFL), Road Accident Fund (RAF) Levy, and the Carbon Tax.

Over the past few decades, these fuel levies have become an increasingly important source of government revenue, accounting for 11.3% of total tax revenue in 2024/25.

The tax is also easy and relatively inexpensive for the government to administer, in contrast to other sources, such as personal and corporate income tax, which are more complex to administer.

Therefore, some economists, like Efficient Group chief economist Dawie Roodt, were concerned when calls grew for the government to reduce the fuel levy ahead of April.

Roodt warned that such a proposal is unrealistic as it would significantly impact the government’s revenue, its primary surplus, and plans to stabilise debt.

“I think reducing the fuel levies is not a good idea. Remember, the fiscal accounts are in deep trouble. This is just cheap politics,” Roodt said. 

“In the end, what is going to happen is that there will need to be an increase in other taxes to make up the shortfall, or the state will have to spend less.”

However, Investec chief economist Annabel Bishop said South Africa’s planned fiscal consolidation will likely not be interrupted by the cost of the fuel levy relief.

She estimated that the relief will come at a cost of R6 billion to the fiscus, slightly higher than Momentum’s estimates, but “has now been met with news of overcollection in tax revenues for 2025/26 of R3 billion”.

Therefore, she said the remaining R3 billion cost, combined with the improved investor climate South Africa has experienced in 2025 and 2026, will likely not significantly impact South Africa’s fiscal consolidation trajectory.

Notably, she said the improved investor sentiment toward South Africa is also likely to persist after the temporary interruption of the Middle East war.

However, she said this is not to say the impact of the war on South Africa’s economy is over, or even near to being over.

“Lagged effects from higher fuel prices will feed through as well as second-round effects, but these are not likely to be very large impacts,” she said.

Packirisamy and Masike said a notable risk to South Africa from the war is that energy-led inflation resulting from fuel price hikes becomes broad-based and filters into food prices.

The chart below, taken from the 2026 Budget, shows how fuel taxes as a percentage of the price motorists pay at the pump have changed over the past decade.