Sasol the tax cow
Money is gushing into the fiscus from an unlikely source. Petrochemicals giant Sasol could see after-tax profits of R25-billion for 2008, rising to more than R40-billion in 2010, according to analysts.
This means treasury could see tax gains of at least R10-billion this year alone, rising to a whopping R15-billion in the next few years. In 2005, before the recent rise in oil prices, government netted just R4,5-billion in corporate taxes from Sasol.
Sasol is the largest corporate taxpayer in South Africa and last year handed over about R8-billion in tax to government, according to its 2007 annual report.
This is up R2-billion from 2006, which sat at R6,8-billion.
In the space of three years tax revenue from Sasol will have doubled.
These tax revenues on corporate profits are distinct from the R1,27 a litre fuel tax that netted R24-billion during the last financial year.
Motorists were hit with another price rise this week when petrol reached the R10 a litre mark in Gauteng.
Earlier this year the Mail & Guardian reported that it costs Sasol about $35 a barrel to manufacture fuel from coal.
The international price peaked at $143 a barrel earlier this week, giving the company a profit margin of about $108 per barrel. Put another way, for every R1 of sales, Sasol makes about 75c profit. Government takes about one-third, 25c of this, in tax.
Processes by government to mitigate the impact of fuel costs on the public are “under way”, but policy reform required to see a drop in the petrol price will kick in only at the beginning of 2010, government officials say.
It is unclear if government could use some of the tax windfall to ease the burden of sharply higher fuel prices. The country already spends heavily on subsidising public transport, an apartheid overhang where people were located far from their place of work.
The Department of Transport has budgeted to spend R15-billion on transfers and subsidies this year. This is 95% of the department’s total expenditure of R15,8-billion.
Treasury would not comment on whether any regulatory strategies were being explored to lessen the impact of fuel costs on the South African public.
Spokesperson for treasury Thoraya Pandy said that “it is still too early” to comment on the potential windfall tax for government pending Sasol’s results.
In February last year, a report on the inquiry into a possible windfall tax on South Africa’s liquid fuels industry was handed to treasury. Treasury decided against a windfall tax, mainly because it would be retroactive and could impact negatively on future investment by Sasol.
A task team investigating the possible imposition of windfall taxes on the fuel industry made a number of recommendations aimed at modernising the archaic fuel industry which retains much of the structure designed to meet the fuel needs of apartheid South Africa.
One recommendation made is the institution of a maximum fuel price. The report suggests that the “constituent elements similar to those currently in use could be used to calculate such a price cap”.
It also suggests that the “prohibition of discounting and purchasing incentive” be halted and that fuel purchases using credit be allowed.
“This will allow increased competition and an opportunity for some of the benefits thereof to be passed through to motorists,” said the report.
Interestingly enough, in its submissions during the inquiry, Sasol also suggested that “discrete alternatives”, such as regulatory reform, be applied to the industry, rather than punitive taxes.
However, the deputy director-general of hydrocarbons at the Department of Minerals and Energy (DME), Nhlanhla Gumede, said that before a maximum retail price can be implemented, regulatory issues surrounding the wholesale margin have had to be ironed out. They are being reviewed through a regulatory account reform process which is under way, Gumede said.
The wholesale price margin is based on a set of guidelines, namely the Marketing-of-Petroleum-Activities Return (MPAR). The margin incorporates, among other things, the capital cost of building a service station, according to Gumede.
And while this cost is transferred to large corporations which own 60% of the service stations in the country, for independent dealers these capital costs are not incorporated in the wholesale margin.
The review is designed to “level the playing field”, said Gumede. The reform process should, however, be completed by the end of the year. It will then be implemented, after which a year is granted to allow the system to adjust.
Gumede said that thereafter a maximum retail price could be instituted sometime in late 2009 or early 2010.
Gumede said that there is a proposal for the DME and treasury to come together to look at ways of mitigating the effects of rising fuel prices for the consumer. What will be on the table is unknown, says Gumede.
Some critics have suggested a re-examination of how the basic fuel price is set, he said. But since South Africa is still importing fuel, the department is reluctant to “toy” with these categories, he said. This is because it could become more expensive to import fuel than to sell it on the local market, which would in turn risk the security of supply.
“Without risking the security of supply there is very little we can do from our side,” he said. “The options in terms of the cost side are very limited.”
Gumede said when the department and treasury do meet, however, some “creative ways going forward” will need to be found to ease the public’s burden.
Sasol declined to comment, citing its closed period ahead of annual results.