Problem with plan to increase fuel taxes in South Africa

The Automobile Association of South Africa (AA) has slammed Finance Minister Enoch Godongwana’s proposal to increase the general fuel levy (GFL) starting next month.

In a statement, the organisation said the increase will drive up transport costs and food prices, and place low-income households under even more strain.

“While acknowledging the government’s fiscal constraints, the AA warns that this increase will have immediate and far-reaching consequences for consumers and the economy,” it said.

“This levy adjustment comes at a time when South Africans are already contending with high food prices, elevated interest rates, increased electricity tariffs and persistently high unemployment.”

The AA highlighted that fuel is a critical input cost across all sectors of the South African economy.

It said any increase drives up transport and operational costs, further intensifying inflation.

“Lower-income households, which spend a greater share of their income on transport, will be disproportionately affected by this rise,” it said.

Presenting the proposed 2025 budget for the third time on Wednesday, 21 May 2025, Godongwana proposed an inflation-linked GFL increase effective 4 June 2025.

The increase amounts to 16 cents per litre for petrol and 15 cents per litre for diesel.

According to the AA, the combined cost of the GFL and Road Accident Fund (RAF) levy will exceed R6.00 per litre in some areas.

These add-ons would account for over 30% of the total pump price before adding the base fuel cost, distribution margins, and retail markup.

“While the AA recognises the need to address fiscal pressures, continuously turning to fuel levies to fill budget gaps is unsustainable, especially in the absence of transparency on how these funds are allocated and used,” it said.

The AA has called for a comprehensive and transparent review of South Africa’s fuel pricing formula that should include the following:

• A forensic audit of revenue generated from the GFL and RAF Levy, including its allocation and expenditure;
• Full transparency on the fuel price-setting formula published by the Department of Mineral Resources and Energy;
• Engagement with civil society, labour, and the transport sector to identify fair and sustainable revenue models; and,
• Exploration of alternative funding mechanisms that reduce reliance on fuel-based taxation.

“Although the latest increase may appear modest in isolation, it forms part of a broader trend where motorists and transport-reliant industries bear the brunt of fiscal policy changes,” it said.

First GFL increase in four years

The GFL adjustment Godongwana proposed will increase the GFL on petrol to R4.12 per litre and on diesel to R3.97 per litre.

South Africa’s GFL has remained consistent for the past four years, with Godongwana not increasing the add-on in 2021, 2022, 2023, and 2024.

The change means around 20% of the money motorists spend refilling their cars with unleaded 95 inland will go towards the GFL.

With the proposed adjustment for diesel, the GFL will make up around 21% of the inland price per litre of 50ppm diesel, based on May 2025’s fuel pricing.

“This budget proposes an inflation-linked increase to the general fuel levy. For the 2025/26 fiscal year, this is the only new tax proposal I am announcing,” the minister said.

“It means from the 4th of June this year, the general fuel levy will increase by 16 cents per litre for petrol, and by 15 cents per litre for diesel.”

He noted that the GFL increase alone wouldn’t close the fiscal gap over the medium term.

He did not mention increasing the fuel price add-on in his prior budget proposals.

He had previously proposed increasing South Africa’s value-added tax (VAT) to 17%, which was shot down, and then again to 16% in half-percentage increments over two years.

The proposed VAT increase has now been scrapped, leaving a large fiscal gap over the medium term.