Possible petrol price pain because of card transaction fees

The Fuel Retailers Association (FRA) wants to tackle the issue of petrol stations absorbing card transaction costs of R0.44 per litre and is debating whether to pass this cost on to motorists.

According to payment data from the FRA, around 80% of fuel purchases are paid with a bank card, while only around 20% are paid using cash. Petrol stations are forced to absorb card transaction costs, which aren’t factored into the retail margin.

Speaking at the FRA’s sixth conference, CEO Reggie Sibaya said it isn’t fair for retailers to cover these costs.

“If you swipe your credit card, 44 cents a litre, which is not in the retail margin, has got to be absorbed by the retailer, which we believe is very unfair,” said Sibaya.

“There is still a debate at the moment whether that cost should be transferred to the motorist.”

However, he noted that the FRA isn’t calling for the cost to be permanently transferred to the motorist; it wants the Department of Mineral and Petroleum Resources to intervene.

“We want motorists to understand: we want a fair model. We’re not saying it must be transferred to them,” said Sibaya.

He said the FRA is engaging with the South African Reserve Bank to reduce card transaction costs.

“At the same time, the Department of Mineral and Petroleum Resources needs to ensure that retailers are recovering these costs while we look at future solutions. It is unfair for retailers to absorb these costs,” he added.

South Africa’s hefty fuel price add-ons have been a point of contention among the country’s motorists for several years.

A MyBroadband analysis from August 2024 revealed that South Africa’s General Fuel Levy (GLF) and Road Accident Fund (RAF) tax had skyrocketed since the 2008/09 financial year when they added a combined R1.74 per litre to the fuel price.

The combined total had grown more than threefold —  to R6.04 per litre — by the 2024/25 financial year.

However, there is good news. Finance Minister Enoch Godongwana announced in late August 2024 that he would soon table a Fuel Price Intervention Plan to address high fuel prices in South Africa before cabinet.

Mineral and Petroleum Resources Minister Gwede Mantashe said discussions about reducing fuel prices were at an advanced stage in early October.

Speaking at the African Oil Week in Cape Town, Mantashe said South African motorists should pay around R6 less per litre of fuel.

“In the fuel price, there is the general fuel levy, there is the Road Accident Fund, linked to the price of fuel. So instead of buying a litre of fuel for R14, you buy it for R20,” said Mantashe.

“Our argument is: you are distorting the price of fuel. Let’s find the formula for separating these two things and have the price of fuel visible.”

“We intend to conclude this discussion in the shortest possible time,” he added.

Potential for big consequences

In July 2024, Econometrix director and chief economist Dr Azar Jammine said reducing or eliminating add-ons like the GFL could have severe consequences.

He said doing so would remove a large portion of the country’s annual revenue, likening the situation to “robbing Peter to pay Paul,” as the government would have to recover the costs through other forms of tax.

“I think one should see the statement as one of a series of statements issued to try and appease consumers who are really feeling cash-strapped in the face of high interest rates and the high inflation that has prevailed for several years,” said Jammine.

“It’s very easy to bring down the fuel price by doing away with the fuel levy, but then the government would sacrifice about 5% of its annual revenue.”

It could be forced to look at other sources of revenue, such as income tax, to recoup these costs.

“I don’t know that people would necessarily be prepared to pay higher income tax in order to fund lower fuel prices,” he said.

Jammine explained that unbeknownst to many South Africans, the GFL isn’t earmarked for maintaining South Africa’s roads; like various other taxes, it goes into the fiscus.

“I think motorists would be very happy to pay more for fuel if they knew that the funds were really being used to upgrade the roads and to prevent potholes and make it easier to commute,” he said.