Government takes R13 billion fuel tax hit

The government is forecast to collect R13.4 billion less in fuel taxes than it forecast at the beginning of the financial year as it left the general fuel levy unchanged in the February Budget. 

This was revealed in the National Treasury’s Medium-Term Budget Policy Statment (MTBPS), released on Wednesday. 

National Treasury forecasted revenue from fuel taxes of R95.8 billion for the 2024/25 financial year. It expects to only collect R82.4 billion by the end of February. 

It attributed this sharp decline to declining fuel demand as it has left levies unchanged for the past three financial years to alleviate financial pressure on households. 

Net fuel levy collections decline by 3.9% year-on-year and a heft once-off diesel refund payment has also affected revenue from this stream. 

Demand declined due a sharp fall in diesel usage as load-shedding’s end in March has reduced need for the fuel to run expensive generators. 

In 2023, the government introduced a refund on the Road Accident Fund (RAF) levy for diesel used by farmers and food producers for their generators, to mitigate the impact of load-shedding. 

The refunds took effect from April 2023 and will end on 31 March 2025. National Treasury expects to make a one-off R9-billion diesel refund payment this year as a result of this policy. 

A decline in revenue from the General Fuel Levy is concerning for the government as it tends to be one of its most stable revenue sources and is relatively easy to collect. 

The revenue from the fuel levy is not the only revenue source to be hit by lacklustre economic growth. 

National Treasury expects overall revenue to fall R22.3 billion short of its expectations from the full budget in February. 

Furthermore, revenue over the next two years is expected to be R31.2 billion lower than initially expected. 

“In the absence of faster growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend,” he said.

“Lower revenue also means that we cannot, within the envelope, accommodate all of the demands on the fiscus.”

While there is a drop in tax revenue this year, the MTBPS forecasts a healthy growth in fuel levy revenue over the medium term. The document projects that the fiscus will raise R109 billion from fuel levies by 2027/28.

One major threat to this outlook is the government’s plan to review how fuel prices are calculated in South Africa to reduce financial pressure on households. 

From the beginning of June, around R6.40 per litre of petrol goes towards paying taxes and levies at the pump – over 25% of the price. R3.85 per litre of petrol goes to the GFL, while for diesel, it is R3.70 per litre. 

This levy is at the centre of the government’s plan to reduce the price of fuel in South Africa. President Ramaphosa said earlier this year that it would review the fuel price formula. 

During the 2024 Africa Oil Week Conference, Minister of Mineral and Petroleum Resources Gwede Mantashe said his department is in discussions with the National treasury to bring down the price of fuel in South Africa. 

Mantashe said the discussions centre around changes to the levies charged at the pump, such as the GFL and RAF Levy. 

“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.”

Mantashe said the levies charged on fuel distort the price of petrol and diesel in South Africa, with a more accurate price being around R14 per litre. 

If changes are made to the fuel levies charged at the pump, a vital source of government revenue may be lost. 

Reductions to the levies charged at the pump will likely be met with fierce resistance from the National Treasury due to the implications for government revenue. 

The AA’s Layton Beard aid this may result in tax increases in other areas, such as VAT, to compensate. These increases would potentially have a larger negative impact on South Africans than fuel levies.