Big change to the petrol price in South Africa planned

Mineral and Petroleum Resources Minister Gwede Mantashe reiterated the government’s plan to review South Africa’s fuel pricing formulae and make petrol and diesel more affordable.

Last month, parliamentary member Thalente Kubheka asked the minister about the steps his department has taken to lower the cost of fuel.

Kubheka argued that the high cost of petrol, diesel, and illuminating paraffin is strangling businesses and ordinary persons in South Africa.

Mantashe responded, saying his department removed a 15% premium from the freight rate last year.  This is the cost of shipping fuel to South Africa from international markets.

The Mineral and Petroleum Resources Department also repealed the 10 cents per litre demand-side management levy on ULP 95.

Mantashe further highlighted that the Cabinet recently announced a Ministerial Task Team to holistically review the fuel pricing formulae.

This intervention followed President Cyril Ramaphosa’s announcement in July 2024 that the fuel price formula would be reviewed to identify areas for price reduction.

During his opening of parliament address, Ramaphosa said one of the key priorities of the Government of National Unity (GNU) was tackling poverty and the high cost of living.

He said the GNU would “undertake a comprehensive review of administered prices, including the fuel price formula, to identify areas where prices can be reduced”.

It is unclear how the formula will be changed to reduce petrol, diesel, and paraffin prices. However, it will likely include a reduction in levies.

This is easier said than done. The government will find it difficult to cut fuel taxes because they are one of the country’s core revenue generators.

If the government significantly changes the taxes it collects from fuel levies, it will have to compensate through other taxes.

Touching personal income tax or VAT is unpopular, which makes the fuel levy much better for political purposes.

Some good news regarding the fuel price is that the weak oil price and rand strength in recent months have seen it decline significantly.

This buys the government time, especially if the favourable conditions for lowering petrol and diesel prices persist.

Expert opinion

An executive at ENS Africa’s Tax Practice, Charles de Wet, explained that fuel taxes are a gold mine for the government.

Currently, taxes account for R6.18 of the price of a litre of petrol and R6.06 of the price of a litre of diesel.

These are only the taxes levied by the National Treasury, which include the General Fuel Levy (GFL), Road Accident Fund (RAF) Levy, and a carbon tax.

The Department of Mineral and Petroleum Resources enforces additional levies, such as the slate levy and petroleum products levy.

This means that R6.40 per litre of petrol goes towards paying taxes and levies – over 25% of the total price for fuel at the pump.

These taxes are easy to collect and hard to avoid, making them attractive revenue sources for the South African government.

Compared to the extremely narrow personal income tax base, a significant share of South Africans pay them.

The GFL is a major source of government revenue, making up around 5% of all taxes collected in South Africa and worth R93 billion in the current financial year.

This tax’s importance in government revenue and the ease with which it can be collected mean that the state is unlikely to reduce this levy.

De Wet said the GFL may be reduced from its current levels of R3.85 per litre of petrol and R3.70 per litre of diesel over time. However, in the short term, this is very unlikely to be touched.

The Road Accident Fund (RAF) levy of R2.18 per litre of petrol or diesel goes straight to the RAF to fund its operations.

The RAF is in dire financial straits and requires additional funding, which means that this levy is also unlikely to be touched.