Bad news for petrol prices

Several banks and major financial institutions believe that finance minister Enoch Godongwana will announce hikes on at least one of the major fuel taxes during his 2025 budget speech.

The two biggest fuel taxes are the general fuel levy (GFL) and road accident fund (RAF) levy.

The GFL currently adds R3.96 and the RAF levy R2.18 to every litre of unleaded 95 petrol.

That comes down to a total contribution of R6.14 per litre, making up over a quarter of the current unleaded 95 price.

While they have surged in the past decade, the GFL and RAF levy remained unchanged since 2022.

The finance minister has explained the “freezes” were necessary to provide relief to cash-constrained households and businesses in a tough economy.

However, considering little room to manoeuvre in other sources of government revenue, some analysts had already expected these taxes to increase in the current financial year, were it not for the fact that 2024 was an election year.

With reduced inflation and lower interest rates from around mid-2024, consumer pressure has eased somewhat.

That has many experts convinced that fuel tax hikes are imminent.

Godongwana already alluded to fuel levy increases being back on the table during his mid-term budget speech on 30 October 2024.

The minister said the government was expecting a R13.4-billion reduction in fuel levy collections due to reduced demand, driven by less load-shedding limiting diesel purchases and continued adoption of solar power.

“Net fuel levy collections contracted by 3.9% compared to the same period in 2023/24 as fuel demand fell sharply,” Godongwana said.

In feedback to BusinessTech and Daily Investor over the past few days, experts from Deloitte, Nedbank, and Old Mutual, agree that the GFL will be increased.

Old Mutual economist Johann Els has explained that the fuel tax is relatively easy to raise and collect, and an increase in this tax was less harmful to economic growth than when applied to other taxes — like personal income tax.

There is a general consensus that the government has no more room for increases in personal income taxes, company taxes, or value-added tax — the other biggest sources of tax revenues.

Deloitte also believes that the carbon fuel levy will be increased again, following a hike from 11 to 14 cents per litre in the previous budget speech.

Disagreement over RAF levy hike

While the institutions did not comment on their expectations for the RAF levy, PwC has told News24 it expects this tax to remain unchanged.

The Organisation Undoing Tax Abuse (Outa) holds a different view.

The organisation contends that the RAF’s dire financial situation — with a R1.5 billion deficit reported for the 2023/2024 period — will be used to justify an increase on this levy.

While acknowledging the critical role of the RAF, Outa maintains a hike is not reasonable considering how the RAF is managing its funding.

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

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

“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.”

Should Godongwana announce adjustments to fuel taxes, these will only take effect from April 2025.

However, the Central Energy Fund’s fuel price outlook currently points towards an increase in petrol prices for March 2025.

Should the trends in the dollar-to-rand exchange rate and global oil prices will be the fourth consecutive fuel price increase and the third in 2025.

That being said, the outlook has improved slightly from earlier in February.

The under-recoveries in petrol prices improved from between 55 and 66 cents per litre at the end of the first week of the month to between 13 and 25 cents per litre in the second week.

The under-recovery in 50ppm diesel prices has also shifted from 32 cents to less than one cent.