Impending Fuel Tax Hike in South Africa Expected to Burden Consumers

South African motorists should prepare their wallets for another hit as Finance Minister Enoch Godongwana is poised to announce an increase in the general fuel levy and the road accident fund (RAF) levy during his budget speech, expected later this month. PwC, a prominent financial services firm, predicts these hikes as part of the government's tough balancing act in preparing the 2024 budget amidst a backdrop of a recovering economy and volatile global fuel prices.

PwC's 2024 budget predictions warn that the government, which did not adjust fuel levies in the last two fiscal announcements, is now facing the inevitability of these increases. The reasoning behind this stems from the projection that commodity prices, which had previously provided a sizeable revenue windfall through higher corporate income taxes allowing for some breathing room, are not expected to sustain their boon. This lends urgency to the government's need to raise additional revenues.

The analytics provided by PwC indicate a stark reality: the general fuel levy is not just any line item but the fourth largest source of revenue for the South African government. Over the past decade, it has garnered around R90 billion in tax revenues annually, showcasing its critical role in keeping the state's coffers buoyant. However, this has now placed the government in a fiscal straitjacket, limiting its capacity to extend any significant relief from fuel taxation.

Given that fuel prices have somewhat steadied, PwC anticipates that the government will reintroduce the customary yearly increases to the fuel levies in 2024. In particular, the RAF levy, which saw no change in 2022 and 2023 to ease pressures on the South African economy and its citizenry, is predicted to rise in proportion with inflation rates in the upcoming budget proposal.

At the core of the matter is how these levies significantly influence the final price at the pump in South Africa. A staggering 28% of the fuel price constituents are taxes and levies alone, with only between 53% to 55% determined by import costs of fuel. This factor renders South African fuel prices considerably higher than those in neighboring countries, even though they import fuel from South Africa.

Breaking down the components of the South African fuel price further reveals the potent impact of government-imposed levies. The basic fuel price, hovering around R12.78 per liter, represents more than half of the total cost. This pricing is sensitive to the costs of importing oil, insurance, shipping, and is swayed heavily by the oil market and the currency exchange rate.

Distribution overhead, accounting for about 15% of the fuel price, incorporates expenses associated with the domestic transport and storage of fuel, and costs for operation at the petrol stations. The two levies, the general fuel levy and the RAF levy, combine to form 28% of the total fuel price, equating to R6.51 per litre of petrol, with the General Fuel Levy alone taking R3.96 per litre into national treasury coffers.

This upcoming budget, which is closely watched by both the public and the industry, signals a financial tightening for the South African consumer, who is already navigating the economic aftermath of the COVID-19 pandemic. The potential repercussions of these hikes are likely to be far-reaching, impacting not just the price at the pump but also the broader economic activity which is sensitive to changes in energy costs.

The insights provided by PwC illuminate the challenges faced by South Africa's fiscal policymakers. As they grapple with the demands of revenue generation against the need to foster economic recovery, South African consumers must brace for more stringent times ahead, particularly with respect to their mobility and energy costs.