/ 31 March 2022

Brief reprieve for motorists: treasury reduces fuel levy by R1.50 a litre until the end of May

Record South African Fuel Prices Add To Inflationary Woes
The department of mineral resources and energy said the new fuel prices would come into effect on Wednesday. (Waldo Swiegers/Bloomberg via Getty Images)

The treasury has resolved to temporarily reduce the general fuel levy included in the basic fuel price by R1.50 per litre for the period between 6 April to 31 May 2022.

The general fuel levy is a tax on each litre of fuel.

Finance Minister Enoch Godongwana announced an emergency fuel price intervention in the national assembly on Thursday afternoon

A “two-phase approach” was agreed upon by the treasury and the department of mineral resources and energy (DMRE) that includes an immediate intervention over the next two months, and a package of measures to reduce prices when the temporary measures lapse.

In a joint statement, the two departments made it clear that the temporary measures are in addition to announcements made in the budget in February. 

Godongwana announced in his maiden budget speech that no changes would be made to the general fuel levy and the Road Accident Fund levy, providing tax relief of R3.5-billion.

This comes after South Africa experienced skyrocketing fuel prices as global oil prices escalated because of the conflict between Russia and Ukraine, which has placed significant pressure on domestic fuel prices. 

In phase one of the “two-phase approach”, the treasury announced the general fuel levy would be temporarily reduced, The general fuel levy for petrol will fall from R3.85 per litre to R2.35 per litre and diesel will drop from R3.70 per litre to R2.20 per litre for two months. 

The partial reduction in the fuel levy will cost the fiscus bout R6-billion in foregone tax revenue for the two-month period, the treasure said. 

To recuperate the lost tax revenue, Minister of Mineral Resources and Energy Gwede Mantashe proposed a sale of crude oil reserves held by the Strategic Fuel Fund (a subsidiary of the Central Energy Fund).

For the second phase of the emergency fuel-price intervention, Mantashe proposed a set of measures to be introduced after the expiry of the temporary measures from Wednesday 1 June 2022. 

These include: 

  • A reduction in the basic fuel price of 3c per litre, in line with the recommendations of the review conducted by the department of mineral resources and energy;
  • The termination of the demand side management levy of 10c per litre on 95 unleaded petrol sold inland;
  • The introduction of a price cap on 93 octane petrol. This will allow retailers to sell at a price below the regulated price;
  • The termination of the practice of publishing guidance by the department on diesel prices to promote greater competition;
  • The regulatory accounting system (including the retail margin, wholesale margin and secondary storage and distribution margins) will be reviewed to assess whether adjustments can be made to lower the margins over the medium term. Interventions will be also considered by the department to reduce the price pressure for illuminating paraffin over the medium term.

Godongwana said the emergency fuel price intervention will not have an effect on the fiscal framework; therefore, an adjustment to the annual budget is not necessary.

Anathi Madubela is an Adamela Trust business reporter at the M&G.