South Africa’s R89-billion petrol price pain

The government expects to make around R89 billion from the general fuel levy in the current financial year, adding to the over R730 billion it has generated in the past decade.

While South Africans experienced some relief from high petrol and diesel prices this month, the fuel cost is still over 50% higher than two years ago and nearly double what it was a decade ago.

A large driver of this has been the additional taxes the government has levied on fuel sold in South Africa.

From the beginning of June, around R6.40 per litre of petrol goes towards paying taxes and levies at the pump — over 27% of the price.

Not all of this goes directly to the government, with the revenue generated by some levies going directly to specific entities.

For example, the National Treasury does not collect the revenue from the Road Accident Fund (RAF) levy. This goes directly to the RAF to fund its operations.

The only levy that goes to the central government is the general fuel levy, which has been left unchanged in the past two budgets at R3.85 per litre of petrol and R3.70 per litre of diesel.

In the 2023/24 financial year, this levy generated R93.37 billion for the government, making up 5% of its total tax revenue. It is the fourth-largest revenue item.

However, the National Treasury expects this to decline in the current financial year because it left the levy unchanged and reduced fuel demand due to South Africa’s stagnant economy.

It estimated this will cost R4 billion in revenue, meaning the amount it collects from the fuel levy will drop to around R89.3 billion.

If the fuel levy remains unchanged for the next two financial years, which is very unlikely, the government will miss out on R4.25 billion and R4.5 billion in revenue, respectively.

While this is not a small sum of money, in the grand scheme of the Budget, it will not dent the government’s revenue.

For the current financial year, the National Treasury expects to raise R15 billion more in taxes than in 2023/24.

It estimates it will collect R15.9 billion more in taxes in 2025/26 and R24.5 billion more in 2026/27.

The graph below shows the amount of tax the government has collected from the general fuel levy over the past decade.

Government’s R357-billion RAF hole

A study by economists at the Reserve Bank found that the RAF levy has been the largest contributor to petrol price increases since 2006.

The Fund compensates road users for losses or damages caused by motor vehicle accidents and receives revenue from the RAF levy charged on fuel purchases. This levy has skyrocketed by 700% in the past 17 years.

The poor financial health of the RAF has reached such an alarming level that even the International Monetary Fund (IMF) has warned that it poses a risk to the country.

“The financial condition of this entity is dire, with its net labilities reaching R345 billion (or 5.5% of GDP),” the IMF said.

“Provisions for claims have risen significantly as growth in claims has outstripped growth in revenues derived from fuel levies.”

This means the RAF is unlikely to survive without government funds. If the state does not bail it out, the National Treasury must fulfil its obligations on the R357 billion debt it guarantees.

Outstanding claims from the RAF have nearly doubled as a share of GDP over the past decade, reaching 5.3% of annual GDP in 2022/23.

It could rise further over the long term, particularly if the switch to electric vehicles erodes the size of fuel levy revenues.

This trend is shown in the graph below.


This article was first published by Daily Investor and is reproduced with permission.

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South Africa’s R89-billion petrol price pain