Call to scrap R6.54 per litre in taxes on petrol in South Africa

The Automobile Association of South Africa (AA) has called on Finance Minister Enoch Godongwana to scrap the General Fuel Levy (GFL) and the RAF Levy completely. 

It has also requested that the basic fuel price formula be reviewed in public by the Department of Mineral and Petroleum Resources. 

This comes as pressure mounts on the government to find longer-term solutions to South Africa’s rising fuel prices at the pump. 

While prices in the immediate term are largely influenced by oil prices and the rand-dollar exchange rate, levies on the sale of fuel have surged over the past decade. 

Data from Codera Analytics shows that the RAF Levy, the GFL, and margins have been the fastest-growing components of the petrol price in South Africa since 2008. 

The RAF Levy has surged by 500% since 2008, while the GFL has increased by 250% since then. 

This makes the two levies the main drivers of higher petrol and diesel prices paid by South African motorists. 

Finance Minister Enoch Godongwana has said the long-term plan is for these two levies to be phased out completely, but the government needs time to find alternate revenue sources to make up for the shortfall of their removal. 

The GFL contributes R80 billion to the government’s revenue annually, while the RAF Levy provides the majority of the fund’s financing. 

Together, the two levies add R6.55 to every litre of petrol, with the AA calculating that this amounts to 20% of the final price at the pump. 

A motorist filling a 50-litre tank pays R329 in levies, while a company running a fleet of 100 vehicles that fill up once a week will pay R1.7 million a year. 

“The removal of these levies is long overdue and a welcome call.” AA CEO Bobby Ramagwede said. 

“Fuel taxes land on everyone who moves: the commuter in a taxi, the business running a fleet, and the worker who pays to get to the job that pays for the journey.”

Ramagwede added that short-term relief is difficult to plan around for individual commuters and businesses, with a long-term solution providing certainty. 

Where to find R80 billion

Economists, such as Stanlib’s Kevin Lings, have repeatedly warned against long-term fuel relief due to the critical role the GFL plays in generating revenue for the state. 

The GFL was instituted in 1983 to fund the maintenance and expansion of the South African road network, but has morphed into a key source of state revenue. 

Revenue from the GFL is not ring-fenced and goes into the National Revenue Fund, allowing the government to spend it how it wishes. 

As a result, the GFL has increasingly been seen as a relatively easy way for the government to boost its revenue and support its ailing financial health. 

The GFL is an easy tax to administer and has a broad base, making it more attractive and financially viable to increase than personal income tax or corporate income tax. 

Removing this levy will leave an R80 billion hole at the heart of state finances, with Godongwana saying a way to close this gap must be found before the GFL can be removed. 

“I have long held the view that the problem is not revenue collection. It is expense management and budget allocation,” Ramagwede said. 

“Our fiscus is porous. That needs to be fixed if we want interventions like this one to succeed.”

Instead of finding additional revenue sources, the government could find savings in the budget by making expenditure more efficient and cutting wasteful programmes. 

It is unclear whether R80 billion in savings could be found, with Lings previously explaining that revenue to plug the gap will have to be found elsewhere. 

The removal of the RAF Levy is equally difficult, with it providing 95% of funding for the state-owned fund that is technically insolvent. 

Ramagwede’s solution is to make a third-party insurance compulsory to replace the RAF, which has been mismanaged over the past decade. 

The fund is technically insolvent and has a claims backlog of R449 billion, of which 59% are older than five years. Ramagwede said the fund is not fulfilling its function despite the significant funding from the RAF Levy. 

“We do not need a central fund to cater for road injuries. We need to deal with the root causes: poor road user behaviour, decaying infrastructure and questionable vehicles,” Ramagwede said. 

“Improve those, and the state carries less of the cost of compensating the people hurt in crashes.”

“The funding model must change, too. Most developed economies have made compulsory third-party insurance the answer to what the RAF is battling to get right.”