Motoring26.09.2024

Problem with cutting South Africa’s fuel taxes

While South African motorists often express frustration with the country’s fuel-related taxes, it is highly unlikely that the government will reduce them soon.

Although the Government of National Unity (GNU) has embarked on a fuel pricing review, the contributions of taxes in the prices of petrol and diesel are not expected to be adjusted.

The two main taxes on transport fuel sold in South Africa are the general fuel levy (GFL) and the road accident fund (RAF) levy.

As it stands, R3.85 and R2.18 of every litre of unleaded 95 premium sold in the country go towards the GFL and RAF levy, respectively.

While initially intended only for road infrastructure, the GFL was never ringfenced for transport or road–related expenditures.

Instead, it funds other parts of the government’s budget, including general municipal spending.

ENS Africa’s Tax Practice executive Charles de Wet recently explained that the GFL is easy to collect and difficult to avoid, making it highly attractive to government.

It also been used as an easy booster for government revenue to try and balance the state’s budget.

Econometrix director and chief economist Dr Azar Jammine told Cape Talk that although it would be easy to bring down the fuel price by scrapping the GFL, it would cost government roughly 5% of its annual revenue, working out to nearly R100 billion.

The government would likely seek to compensate for this by adjusting income tax, but financial experts generally agree that South Africa’s income tax rates have reached the ceiling.

“That would be a case of robbing Peter to pay Paul,” said Jammine.

The other major tax component in fuel prices — the RAF levy — has been the subject of greater scrutiny by civil society and is arguably the more contentious of the two taxes.

The RAF levy is used to fund the government’s compensation to people who suffer bodily injury from accidents on the country’s roads or dependents of people deceased in accidents.

While it no doubt plays an important part in helping people avoid financial ruin due to the country’s dismal road safety issues, the increase in the RAF levy has been excessive in past years.

The tax increased by 425% between 2008 and 2021, compared with a 225% increase in the GFL, and a 119% jump in the basic fuel price over the same period.

The graph below shows how the increases in the GFL, RAF levy, and basic fuel price compared from 2008 to 2021.

Another RAF hike likely — Outa

Despite the RAF levy increase being far higher than inflation, there are early signs that it could be hiked next year.

The RAF recently blamed a R1.5-billion deficit for the 2023/2024 financial year on its levy not being adjusted in the past three years.

RAF CEO Collins Letsoalo argued that the real cost of the levy has come down when taking inflation into account.

Organisation Undoing Tax Abuse CEO Wayne Duvenage expects the Minister of Finance to announce an increased RAF levy during his budget speech in February 2025.

Duvenage previously argued that the only reason the government left the GFL and RAF unchanged during the last budget adjustment was because of the elections.

However, while they expected a fuel tax hike, Duvenage said Outa opposed it.

He said that despite these fuel taxes not increasing in the past three years, a hike cannot be justified when looking at how the RAF manages its funding.

“The RAF has been poorly managed for a long time now and it needs to be fixed through a number of interventions to make it both efficient and effective in meeting its mandate to the public,” Duvenage said.

However, Duvenage ruled out that the levy could be scrapped to save taxpayer money, explaining that the alternative could be worse.

“The alternative is to introduce a compulsory third-party insurance for all motorists and to effectively outsource the insurance to the private sector,” he said.

“The problem with this approach is that too many vehicle owners do not purchase the 3rd party insurance, and problems arise when people are injured.”

“Just as it is a crime not to have a vehicle or drivers license, too many people do not adhere to the law, which is another whole issue on its own, pertaining to poor visible and ineffective traffic policing.”

“Thus, the levy is necessary, but the RAF is not effective in its application of the processes required to manage it.”

Wayne Duvenage, Organisation Undoing Tax Abuse CEO

Fire “problematic” CEO and board

Duvenage called on the transport minister to remove the current RAF CEO and the board who have become “problematic” in addressing the entity’s challenges and attempting to change its accounting principles.

“We sincerely believe the RAF requires an overhaul in its systems,” Duvenage said.

“The Auditor-General, SCOPA, and others have reported on gross irregularities at the RAF,” Duvenage said.

Among those who have reported on the irregularities at the RAF is the the Automobile Association of South Africa.

“The private sector needs to be brought in to assist with the introduction of impactful systems and processes to manage the affairs and up-skilling of the RAF.”

The RAF’s head of corporate communications, McIntosh Polela, has stated that the organisation’s current model is unsustainable, pointing the finger at too much litigation.

Polela believes that South Africans should not be required to sue the state to access the benefits of the scheme.

“We issued an RAF bill to Parliament in 2023, where we say we need to change the system; otherwise, the whole system is going to collapse,” said Polela.

“Of the 86% of the cases that were going to the court in 2019 to 2020, only 1% went to trial because most of them were being settled [because most of them] should never have been there.”

However, professor emeritus Hennie Klopper told MyBroadband that this was, at best, an attempt at spin from the RAF.

At worst, it demonstrated a total lack of understanding at the agency regarding the RAF Act, which it is legislatively and Constitutionally obliged to administer.

Klopper is a retired private law professor who taught at the University of Pretoria and practising attorney since 1973.

“The system is not based on litigation as is stated, but on common law. What is recovered by claimants as clearly stated by the Act are not benefits but loss or damage suffered.”

Klopper explained that the Act contains provisions that actively encourage the settlement of claims without the need for litigation. It also actively discourages litigation.

“Some of these RAF provisions carry the sanction of loss of claim and an adverse legal cost order where there is non-compliance of early disclosure of information requirements, or where there is unnecessary and speculative litigation by claimants,” he said.

“The fact that the RAF is a litigant is a direct consequence of the RAF’s failure to timeously and effectively deal with lodged claims.”

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