Big petrol price changes coming for South Africa

Significant changes are set to be made to petrol prices and diesel prices in South Africa as the Department of Mineral and Petroluem Resources is in discussions with National Treasury on ways to reduce the cost of fuel. 

The government has been planning these changes for some time, with President Ramaphosa announcing a review of how prices are calculated at the Opening of Parliament in July. 

Ramaphosa said the Government of National Unity (GNU) would work to reduce the prices of basic goods for South Africans. 

As part of this, it would conduct a comprehensive review of administered prices, particularly the fuel price formula. 

Minister of Mineral and Petroleum Resources Gwede Mantashe gave an update on the progress of the review process. 

During the 2024 Africa Oil Week Conference, Mantashe delivered the keynote address and said petrol and diesel should cost R14 per litre. 

He said his department is in discussions with the National Treasury to bring down the price of fuel in South Africa through changes to the levies charged at the pump. 

“The price of fuel is part of the cost of living. When the fuel price goes up, the cost of living in South Africa increases. This is not good for society,” he said.

“The state must intervene to bring energy prices down in the interest of the South African community.” 

 The discussions include whether it is wise to include the fuel levy and road accident fund levy in the price of petrol and diesel.

Taxes and levies 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.

Mantashe said these distort the price of petrol and diesel in South Africa. He said that the discussions with the National Treasury would be concluded as soon as possible.

Any changes to the levies charged at the pump would be difficult as they are a vital source of revenue for the government. 

In the past financial year, the government collected R93 billion from the general fuel levy. Over the past decade, it has collected R730 billion. 

The revenue generated by the general fuel levy is free to be used by the government however it wishes. On the other hand, the RAF levy goes directly to the fund to be used for its operations. 

Charles de Wet, an executive at ENS Africa’s Tax Practice, said the reason why the general fuel levy has become such a large component of the fuel price is because of the mismanagement of government funds. 

“What we have seen previously is that the GFL has been used to boost government revenue and try to balance the budget,” he said. 

When the levy was first implemented, it was intended to fund the maintenance of road infrastructure. However, it was swiftly moved into the general revenue account and can now be used however the government sees fit. 

The importance of this tax in terms of government revenue and the ease with which it can be collected means 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. 

From 2015 onwards, regulated levies on the fuel price have made up a larger portion of the final retail price of petrol than the Basic Fuel Price, which is largely determined by the international price of oil.

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

These price hikes result from a mix of intentional policy decisions, institutional failures such as those associated with the RAF, and the specific methods used by the price-setters at the Department of Mineral Resources and Energy.