South African petrol tax problem

South Africa’s Road Accident Fund (RAF) is in a dire financial situation, reporting a R1.5-billion deficit in the 2023/24 financial year.

It already contributes R2.18 per litre to the fuel price — over 10%. Proposals to scrap the fund to rein in petrol and diesel prices are also challenging, as they could be detrimental to motorists in the country, particularly those who don’t travel long distances.

If government scrapped the fund, South Africa could join other countries where third-party vehicle insurance is mandatory for motorists.

These include countries like Australia, Germany, India, the UK, and many US states.

The South African government has been under pressure to find ways to reduce the per-litre price of fuel in the country, and some organisations, such as the Fuel Retailers’ Association, have called for scrapping the RAF.

Following the news of the RAF’s deficit, the Organisation Undoing Tax Abuse (Outa) told MyBroadband that, while it doesn’t have an active RAF project, it will never be in favour of scrapping the RAF.

In March 2022, the South African Fuel Retailers’ Association first called for the scrapping of the RAF in favour of mandatory third-party vehicle insurance.

It argued that the model shouldn’t be linked to the petrol pump price.

The RAF effectively works as a form of insurance cover for all road users in South Africa, through which they can claim for injuries and future loss of earnings if they have been involved in a motor vehicle accident.

Without the RAF, motorists would be without such cover, making third-party vehicle insurance critical.

According to Everycent, third-party-only motor insurance can cost upwards of R500 per month, depending on the car’s value and driver risk profile, with prices on the lower end of the scale being around R120 per month.

Assuming a mid-point of around R300, this works out to R3,600 per year, which is equivalent to paying the RAF contribution on more than 1,650 litres of fuel.

Assuming a fuel consumption figure of 7.0ℓ/100km, a motorist would have to drive nearly 23,600km in a year for the RAF contribution to be more expensive than mandatory third-party motor vehicle insurance.

This could be a stretch for many South Africans. According to Numbeo, the average South African commuter travels roughly 44km per day, working out 16,060km per year.

This assumes that a motorist’s weekend driving averages out to the distance of their regular commute.

RAF CEO Collins Letsoalo says the lack of fuel levy hikes in recent years is partly to blame for the R1.5-billion deficit recorded for the 2023/24 financial year.

“The amount of fuel levy we collect is the revenue that we have at the Road Accident Fund. Nothing more. Nothing less,” said RAF CEO Collins Letsoalo.

“The fuel levy keeps on being R2.18, at least since 2021/22. It has not increased over the last three years. You can look at it in inflation-adjusted terms. It has reduced to about R1.93 in real terms.”

The CEO said the RAF’s financial situation is improving despite the deficit. He added that it likely would have collapsed already if it hadn’t changed its model before 2020.

However, the RAF’s head of corporate communications, McIntosh Polela, recently said that while the fund’s 2020 to 2025 strategic focus is working, the RAF model as a whole is “unworkable” and “unsustainable”.

“We are still in pretty bad shape, but we’re not going to allow the money to run out,” he said.

Polela said the RAF was allocated around R55 billion for the year, of which it has already paid out R45.1 billion. Due to backlogs, a further R8 billion is outstanding.

He said the RAF’s model of suing the state for South Africans injured in accidents to access their benefits is unsustainable and shouldn’t be allowed.

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

“We had a situation where, 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 at the doorsteps at the court because, in the first place, they should never have been there.”

However, professor emeritus Hennie Klopper recently told MyBroadband that the RAF was whitewashing the real reason for its financial situation.

He said the RAF’s inefficiency was to blame, and is one of the reasons its fuel levy was so high.

Klopper said the RAF has squandered around R48 billion in unnecessary litigation over the past two decades.

He said the RAF’s claim that its operating model is based on litigation is plainly false.

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.”

Klopper acknowledged that the RAF alone was not the only reason its fuel levy was high — the high number of accidents on South Africa’s roads also contributes.

He said the RAF faces approximately 100,000 claims due to death and injuries on South Africa’s roads.

However, he also noted that the RAF had around 2,400 staff, who only finalise around 30% of claims received annually. It carries the remaining cases over to the following financial year.