Bad news about petrol prices with tax increases on the cards for South Africa

The Finance Minister is likely to increase the General Fuel Levy (GFL) in the latest Budget presented to Parliament to help cover part of the funding gap left by the VAT hike’s reversal. 

This would be the first change to the GFL in over three years, as the minister chose to leave taxes levied on fuel unchanged in the past few years to ease the financial pressure on households. 

This decision would also contradict President Cyril Ramaphosa’s stated plan to review administered prices, including the fuel price formula, to identify areas where prices can be reduced. 

Regarding the fuel price, this would be difficult as taxes levied at the pump are a major source of revenue for the government, contributing R82.4 billion worth of revenue in the last financial year. 

These taxes have also increased markedly over the past decade, now accounting for just under 30% of the price of fuel in South Africa. 

However, the government is in a very difficult position regarding its finances, with the National Treasury trying to limit spending growth and increase revenue collection by capacitating SARS. 

To avoid raising further debt, the National Treasury sought to increase revenue by increasing VAT on goods sold in its two previous 2025 Budgets. This plan has been rebuffed by members of the Government of National Unity (GNU) and faced opposition in Parliament. 

The new Budget, which will be presented on 21 May, is expected to provide new projections, including revenue and GDP growth, and “determine appropriate borrowing strategies”.  

There is a risk for higher borrowing projections as alternative tax avenues are constrained, VAT increases were rejected, and significant income tax hikes are likely to follow the same path.

Investec chief economist Annabel Bishop said in a recent research note that this is likely to result in expenditure cuts, which are deeply unpopular politically. 

Corporate tax increases are not favoured either, given their detrimental impact on growth and employment. 

Customs and excise hikes are another tax on consumption, although moderate sales tax rises are tolerated and will likely occur.

As a result, Bishop explained that an increase in the fuel tax levy will likely be used to cover part of the funding gap, as it is relatively easy to administer and targets a broader base than income taxes. 

National Treasury has also recognised the need to bolster tax collections at SARS and has increased the institution’s funding.

Expanding the tax base increases tax buoyancy. SARS estimates it is owed R800 billion in unpaid taxes, while the funding gap for the budget deficit was estimated at R375 billion for 2024/25 in the March budget.

Taxes make petrol expensive in South Africa

Repeated above-inflation increases in the taxes levied on fuel purchases at the pump are a major reason why the price of petrol and diesel has risen so sharply in South Africa. 

The price of fuel in South Africa is broadly made up of the Basic Fuel Price and the various taxes levied on the sale of petrol and diesel at the pump. 

The Basic Fuel Price is based on the international price of oil and the rand-dollar exchange rate, which determines how much it costs to import oil or finished petroleum products. 

A stronger rand makes importing fuel cheaper, while a weaker rand increases the price.

While these are important factors in determining the price of fuel, administered elements of the price, such as the taxes levied and retail margins, account for around 60% of the final petrol price.

The administered components of the fuel price, alongside a much weaker rand, are the main drivers behind the rising cost of petrol and diesel in South Africa. 

The price for a litre of 93 octane petrol in inland South Africa has increased by 68.8% over the past decade, while the price of oil has actually declined by 5.3% over the same period.

In May 2015, South Africans filling up their cars with 93 octane petrol in the country’s inland provinces would have paid R12.61 per litre, including taxes. In May 2025, they are paying R21.29 per litre.

The most significant levies on fuel sales in South Africa include the GFL, the RAF Levy to fund the Road Accident Fund, the retail margin, transport cost, and wholesale margin. 

The wholesale margin is the only administered element to have increased below the rate of inflation since 2013, with the rest far outpacing headline inflation. 

For example, the RAF levy has risen by 44% in real terms over the past decade, while the retail margin and transport cost have risen by 40% and 49%, respectively. 

The General Fuel Levy, more commonly known as the fuel tax, has risen by a similar amount over the past decade.