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South African government can’t tinker with the fuel price formula – and it shouldn’t


Sasha Planting is a seasoned financial journalist and Associate Business Editor at Daily Maverick Business.

There has been a great amount of wailing and gnashing of teeth about the latest rise in the fuel price, not helped by the fact that the Department of Mineral Resources and Energy bungled its December calculations, inadvertently giving the fuel retailers an additional 6c – a mistake the department quickly had to rectify.

Despite the correction, fuel now costs more than R20 a litre, up more than 40% from its R14.69 price in January this year. All of us know that jobs, wages and salaries have not kept pace with these heavy increases, which inevitably have an inflationary impact on our already sky-high cost of living. Higher average oil prices, a weaker rand and higher levies on petrol and diesel are behind all of these increases. Coming in a week when the unemployment figure hit almost 35%, the calls for the government to review its fuel-pricing formula are reaching fever pitch. As a motorist, the price of fuel hurts. As a consumer, the taxes hurt. And as a South African receiving little value for my tax rand, it makes me question my tax ethics.

But the government is between a rock and a very hard place and cannot tinker with the formula. Briefly, the basic cost of a litre of fuel is 973 cents. Add to this some 629 cents in taxes – the basic fuel levy, Road Accident Fund levy and customs. There is also a slate levy of 41.6 cents. This is the only levy that doesn’t go to the government and is used to balance incremental changes in the oil price during the month. Other costs – like secondary storage and distribution – add another 97 cents to the price. That is before you add in the margins for the oil suppliers and margins for the retailers, collectively some 274.3 cents. I have left out a few sundries, such as a levy imposed on Gauteng motorists, but you get the picture.

If the government was to reduce the cost of fuel, where should it start? Obviously, for most South Africans the answer lies in the hefty taxes, which account for about 30% of the cost of every litre of fuel sold. But, realistically, how? The South African Government raises almost R90-billion each year from fuel taxes, and while a portion goes to the dysfunctional Road Accident Fund, by far the greater portion finds its way into the fiscus. The government could lower fuel taxes and raise taxes elsewhere. But where? Fuel taxes are one of the most efficient ways for governments to raise revenue out of the economy. And while it’s probably not the most progressive tax around, the responsibility for paying the tax falls to just a handful of oil majors. Thus, there is not as much room for shenanigans as there is when paying over VAT or PAYE or any of a myriad other taxes.

Of course, how efficiently and honestly the government spends our tax money is another matter entirely. But coming back to reducing the fuel price. If not taxes, then where? Should retail and wholesale margins be cut? As it is, retail margins are skinny. So what about the fees that are being charged by the oil majors? The likes of Shell, Total, Engen and Glencore-owned Astron Energy profit handsomely from their business in SA. These days this is largely the importation and distribution of refined fuel products into the country, given that there are only two working refineries in South Africa – Natref in Sasolburg and Sapref, run by BP and Shell, in eThekwini. The problem is that SA is entirely dependent on fuel imports and so is beholden to the oil majors.

All of this brings me to another point. High oil prices are no excuse to lower fuel taxes. In fact, they are a signal that we use too much oil. Lowering fuel taxes blunts this signal and only makes us use more oil. If we want to look at taxes, let’s ask why the tax on imported electric vehicles is insanely high. And why is there no concerted effort to support the development of electric vehicles (EVs) in SA? It’s to protect SA’s car industry, which relies on precisely those expensive fossil fuels we are all bleating about. Let’s push for either lower taxes on EV vehicles, or the development of a local EV industry. Now that is a fight worth having. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.


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  • Rory Macnamara says:

    I believe that there is a push for electric vehicles but listening to on electric car owner an electric vehicle provides approx 400 kilometres. one might squeak into Bloem with some astute downhilling buy the irony is one needs a generator (run on petrol) to get you back. typical SA, whine about the end result, electric cars, when we have no places to charge the vehicle on long trips. so surely we should be gearing up to provide charging points. Ah, but then we have that small matter of Eskom, the Electricity Shortage C (k)ommission but that is not for now.

  • Rob Wilson says:

    One cannot but agree that taxing fuel is the most efficient and broad means of collecting tax. So switching over to EV’s is not going to help that cause, and yet another means of taxation will emerge to mop up the missing contribution. It is not EV’s themselves that are the problem-range will improve. But it is the fact that so many car owners do not and will not have access to suitable charge points-the infrastructure is just not there, and Eskom have far bigger priorities-like trying to produce the energy from an old fleet of coal burning plant in the first place. EV’s must be small fry in this challenge.

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