Petrol tax increase on the cards

The Finance Minister will most likely raise fuel taxes in his upcoming Budget Speech, as it is a relatively easy way for the government to raise revenue from a broad source. 

This is feedback from Old Mutual chief economist Johann Els, who outlined his macroeconomic projections for South Africa in 2025 in his annual outlook. 

Els expects 2025 to be a much better year for South Africa than the country has experienced in the past, with economic growth expected to pick up to around 2%. 

Inflation is also expected to remain relatively low and crucially below the midpoint of the Reserve Bank’s 3% to 6% target range. 

Coupled with the effect of the cumulative 75 basis points reduction in interest rates so far, this should ease the financial pressure on households. 

However, one area that is unlikely to improve rapidly is the government’s financial position, with its debt burden at risk of becoming unsustainable and debt-servicing costs skyrocketing. 

The National Treasury has attempted to improve this picture through fiscal consolidation and keeping a tight lid on government spending. 

SARS’ improved efficiency and capacity have also resulted in strong tax revenue growth despite a stagnant economy. 

Additional revenue has also been raised by the National Treasury not adjusting tax brackets in line with inflation last year, resulting in some taxpayers moving up a bracket and handing more money over to SARS. 

The next method the government is likely to use to raise taxes is the General Fuel Levy (GFL), Els explained. 

This tax is relatively easy to administer, generates significant revenue, and is relatively broad-based. It is also less harmful to economic growth than other taxes, such as corporate income tax and personal income tax. 

However, a major impact of an increase in the GFL is that it will result in higher petrol prices at the pump. Combined with the Road Accident Fund Levy and other levies, taxes make up just under 30% of the price of fuel.

What makes the fuel tax even more attractive for the Finance Minister is the fact that it has not been raised for two consecutive financial years to help alleviate financial pressure on households. 

By leaving the fuel tax unchanged, the government is expected to collect R13.4 billion less in fuel taxes in the current financial year than expected at the time of the Budget Speech last year. 

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

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

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

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

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.

This is likely to push the government to try to raise revenue through increasing taxes. However, as the country’s tax base is so concentrated, it will probably look to more broad-based alternatives to personal and corporate income taxes.

Apart from the GFL, another such source of revenue for the government is excise taxes levied on alcohol and tobacco. 

Els also expects these to rise in the Budget Speech on 19 February as it is also easy for the state to raise revenue without much additional work.