“Scrapping the fuel levy means that the rich would also receive that benefit. So, from a point of equity and reducing poverty, it would make more sense to increase cash transfers to the poor and to leave the fuel tax as it is.” (Photo by Per-Anders Pettersson/Getty Images)
Calls have come from many quarters to do away with the general fuel levy, given its contribution to the record-breaking price of fuel. Yet, it also contributes R90-billion to the fiscus and experts contend that, should it be scrapped, the government would have few ways to raise a similar amount.
The general fuel levy is a tax on each litre of fuel sold and is pegged at R3.93 a litre (up from R3.77 last year). The Road Accident Fund levy is R2.18 a litre (up from R2.07 last year). Combined, they add R6.11 to every litre of petrol and diesel sold in the country, according to the Automobile Association.
Changes to the general fuel levy and Road Accident Fund (RAF) levy are announced once a year during the national budget speech.
On Monday, the department of mineral resources and energy announced that the general fuel levy, which was reduced by R1.50 a litre from April to June, would be reduced to 75 cents from 6 July.
Petrol prices will increase from Wednesday by R2.37 (93-octane unleaded) and R2.57 (95-octane unleaded) a litre. Diesel prices will rise by R2.31 (0.05% sulphur) and R2.30 (0.005% sulphur) a litre.
Official opposition the Democratic Alliance has said of the contentious general fuel levy that road users are effectively reimbursing the treasury for taxpayer funds lost to corruption and wasteful expenditure.
“Let’s get rid of the R3.93 per litre general fuel levy because it has nothing to do with fuel. It is just difficult to avoid and easy to collect … that money goes straight into the treasury and adds about R90-billion to the big pot of money that funds corruption and mismanagement. If we scrap that, the government will be forced to be more frugal in their expenditure,” said DA representative for mineral resources and energy Kevin Mileham, during a national assembly debate on fuel hikes last month.
According to Statistics South Africa, the levy accounts for about 6% of total tax revenue and brings in more money than customs duties or alcohol and tobacco excise duties.
Money from the levy flows into the National Revenue Fund, together with revenue from all other taxes. A portion of it is set aside and transferred to the country’s eight metropolitan municipalities.
Ingrid Woolard, a professor of economics at Stellenbosch University, said there were few avenues that the government could use to collect taxes of R90-billion, should the general fuel levy be scrapped.
“If you increase VAT by 1%, you get another R25-billion, so that means you would need to look at a 3.5% increase in VAT to get R90-billion but that is exorbitant,” Woolard said.
VAT increased from 14% to 15% in April 2018, having remained unchanged since 1993. It contributed 26.5% to the country’s tax revenue last year, according to South African Revenue Service’s 2021 tax statistics.
“Personal income tax has very similar numbers, so a 1% increase will give you about R20-billion. You would have to increase taxes across the board to get that kind of money. We’ve just run out of road. There are no easy wins in terms of where you can get new revenue,” Woolard said.
Personal income tax contributed 39.1% to tax revenue last year.
Personal income tax, together with corporate income tax and VAT, accounts for 81.9% of the total tax revenue. The fuel levy, together with specific excise and customs duties, accounts for 12.4%, while other taxes make up the remaining 5.7%.
Other possible avenues to recoup the R90-billion could be to cut subsidies to state-owned enterprises, said Woolard.
“Cutting those subsidies, or containing them, would give us some room.”
Road Accident Fund levy
It was also important that the RAF levy was not forgotten in the conversation around the general fuel levy, said Woolard.
“We’re all paying R2.18 per litre towards the Road Accident Fund, which is poorly managed, and we’re all over-paying for that. That expenditure could be reduced.”
The levy is used by the RAF to compensate victims of motor vehicle crashes.
“No matter what the fuel price is for this month and the next, [the government] should look at reforming the road accident fund levy,” Woolard said.
The Automobile Association has also urged the government to review the RAF’s funding structure.
“Our reliance on the RAF is a direct result of South Africa’s poor road safety and that’s where more attention needs to be given for a long-term solution,” added Woolard.
Trade union federation Cosatu has called on the government to retable the Road Accident Fund and Road Accident Benefits Scheme Bills in parliament by next month.
“These are key to overhauling the RAF, addressing its ballooning R400-billion liabilities, and placing it on a sustainable path,” the federation said.
The DA has long called for reforms to the RAF.
“The RAF is a cesspool of mismanagement and every litre of fuel purchased is paying for that. Our demand is that the R2.18 RAF levy be cut, for all road users who can prove that they have valid, comprehensive third-party insurance. Stop forcing them to pay for insurance twice,” said Mileham.
Would scrapping the general fuel levy be sufficient?
Maya Goldman, a researcher at the University of Cape Town, said finding funding for the general fuel levy would require changes to various taxes, which would leave little room to manoeuvre.
Instead, the government should introduce a basic income grant, she said, which would be more pro-poor than scrapping the general fuel levy.
“Scrapping the fuel levy means that the rich would also receive that benefit. So, from a point of equity and reducing poverty, it would make more sense to increase cash transfers to the poor and to leave the fuel tax as it is,” Goldman said.
A basic income grant would provide an income for those from 18 to 59 who cannot access employment or make a meaningful income.
Goldman said another way the government could protect the vulnerable from harsh taxes, such as the general fuel levy, was through a means test.
“Perhaps giving cards which allow the vulnerable to have their taxes waived … the implementation of a system like that would take a while, but we have vehicles such as the social relief of distress grant that would assist.”
Socio-economic solutions would probably protect the vulnerable more than a fuel levy cut, said Goldman.
“We need to make sure people have access to safe and affordable public transport. [That would require] subsidising public transport … or working with the taxi companies somehow to subsidise and ensure they don’t put up their prices so it does not impact the poor as much. We need to watch out for the vulnerable if we are ever going to survive as a species.”
Anathi Madubela is an Adamela Trust business reporter at the M&G.
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