Fuel giant Sasol stands to pay additional taxes of hundreds of millions of rands annually if oil prices continue to remain at their present high levels.
Details of the proposals put forward by the task team appointed to look into a windfall profits tax for the liquid fuels sector emerged in the budget announcement this week.
The national treasury’s budget review contained details of the proposals, such as an additional windfall tax that would kick in at a set crude oil price of between $45 and $55 per barrel.
Opinions vary as to how effective this windfall tax proposal could be, with one analyst claiming the market will react negatively to the proposals and another claiming that it is in line with expectations.
The share price of fuels manufacturer Sasol barely reacted to the announcement, dropping from R254 to R250,80 on budget day and then rising to R251 the following day.
One analyst said it was difficult to know what Sasol would have paid last financial year because of the amount of unknown variables, but did estimate that with an average crude oil price of $66 per barrel, the annual amount would have been in the region of R440-million.
The analyst described this as insignificant and said it would have little impact on the South African consumer.
“You will have to tax this company to death to have any effect on the South African consumer,” said the analyst. “It’s a stupid tax and I can’t understand it.”
Another analyst said the market would not respond well to the details contained in the national treasury’s budget review. “The market will not like that,” said the analyst, “$55 is fine, but it won’t like $45.”
When asked why the proposal had not led to a reaction in the Sasol share price, the analyst said it could only be because no one had seen the proposal details which are on page 74 of the budget review.
“No one has seen page 74 yet,” said the analyst. “Page 74 will kick in tomorrow.” The task team submitted its report to treasury earlier this month and Finance Minister Trevor Manuel announced in his budget speech this week that the report would be released for comment by the end of the week.
The budget review also contains a second proposal by the task team: a progressive incentive regime for investments in new synthetic fuel and biofuel plants.
This incentive scheme includes tax credits at low petroleum prices and a tax at high prices and the qualification of biofuel and bioethanol for the lower general fuel levy.
The task team also argued for the investment regime to apply irrespective of the fuel type that is produced and technology used, which they feel would encourage more efficient lower-cost options.
The budget review said both proposals have merit and that government’s initial response was to accept both responses in principle.
It also states that “the actual design and relevant thresholds will require additional work and consultation with relevant stakeholders, taking into account their cost structures and future investment plans, along with South Africa’s long-term liquid fuels requirements”.
Sasol welcomed the announcement that the task team’s recommendations about a possible tax on windfall profits would be released at the end of the week, but said it would like to study the report before commenting.
“We appreciate both the invitation to interact with government and the definitive schedule to finalise this matter,” said Sasol Group GM Bheki Khumalo.
A decision about the proposals is expected by July 31 and they are only expected to take effect from January 1 2008.