South Africa’s petrol price pain and how taxes make it worse

The price for a litre of petrol and diesel has risen over 50% in the past two years, with a large portion of this being driven by above-inflation increases in the levies and taxes charged on fuel in South Africa. 

Despite a significant reduction in the price of fuel for June, South Africans are still paying much more for petrol than they have in the past. 

Standard Bank chief economist Goolam Ballim said earlier this year that South Africans are paying, on average, 54% more for petrol and diesel than they were just two years ago. 

A study by economists at the South African Reserve Bank, Zaakirah Ismail and Christopher Wood, showed that above-inflation increases in fuel levies have driven this increase. 

These administered elements of the fuel price have accounted for between 40% and 60% of the final retail petrol price.

The other major component is the Basic Fuel Price, which is based on the cost of importing fuel into South Africa and related insurance costs. 

This is largely affected by the global price of oil, with the biggest cost being the purchase of oil or a refined product from a foreign country.

According to the Department of Mineral Resources and Energy, most fuel imported into South Africa comes from the Middle East, Singapore, and the Mediterranean. 

With the vast majority of South Africa’s fuel coming from outside the country, another major factor in the Basic Fuel Price is the rand/dollar exchange rate. A stronger rand makes importing fuel cheaper, while a weaker rand increases the price. 

However, economists argue that administered prices have been the largest driver of fuel price increases over the past 15 years.

The largest components of the administered elements of the fuel price are the fuel levy, Road Accident Fund (RAF) levy and retail price margins. 

The retail margin, RAF levy, and transport cost components increased by 40%, 44% and 49%, respectively, in real terms over the 10 years to the end of 2022.

These price increases result from a combination of deliberate policy choices, institutional failures in the case of the RAF, and the specific methodological choices made by the price-setters at the Department of Mineral Resources and Energy. 

From 2015 onwards, administered levies on the fuel price have exceeded the basic fuel price as a share of the final retail price of petrol. 

These increases are shown in the graph below.

The levies charged on fuel have remained unchanged in the past three National Budgets to mitigate the effects of higher inflation caused by rising fuel prices. 

However, the government did increase the carbon tax by 10% on petrol and 22% on diesel in the 2024 Budget. 

This has had a relatively small impact on the price of fuel in South Africa, resulting in a 1 cent per litre increase in petrol and a 3 cents increase in diesel. 

National Treasury said that, including the changes to the carbon tax, this means the total tax paid per litre of petrol will be R6.18 in 2024 and R6.06 per litre of diesel. 

The difference in taxes paid across the different types of fuel is because the general fuel levy is 15 cents less per litre of diesel than of petrol. 

Additional tax is added by the Department of Mineral Resources and Energy in the form of the slate levy and petroleum products levy.

The slate levy from April has added 21.92 cents per litre to the price of petrol, while the petroleum products levy has added 0.33 cents per litre. 

In total, this means that R6.40 per litre of petrol goes towards paying taxes and levies when buying fuel – around 27% of the petrol price in June. 

For a vehicle with a 50-litre tank, South Africans are now paying R320 in taxes to fill up.