South Africa’s fuel price structure is under the microscope as prices continue to soar beyond the affordability of many consumers already under financial pressure.
The latest data from the Central Energy Fund points to a further drop in fuel prices for owners of diesel and petrol vehicles in July, with projections taking petrol to over R26 per liter and diesel to around R24. .50 rand.
The National Executive Committee of the South African National Taxi Council (SANTACO) met on Tuesday to discuss rising petrol prices in the industry. The committee reportedly decided to raise fares in July, putting commuters under additional financial pressure.
Automobile Association chief executive Willem Groenewald wrote in an op-ed for BusinessLive that a gasoline price review was needed.
Groenewald noted that the two main taxes contribute R6.11 to each liter of petrol: R3.93 goes to the General Fuel Tax (GFL) and R2.18 to the traffic accidents (RAF). “There are growing and vigorous calls for the GFL to be scrapped which will reduce the price of a liter of fuel by almost R4.”
The chief executive said scrapping the GFL is unlikely because the government is not easily removing an important source of revenue and would simply shift taxes elsewhere – “increasing cost-of-living expenditure in other ways”.
“Debates in Parliament over fuel pricing will generate political rhetoric, but we believe that a thorough examination of fuel pricing by experts who question the relevance of its components and the accuracy of its calculations, while dealing more efficiently with the disbursement of government funds, is the only way forward,” Groenewald said.
Dick Forslund, senior economist at the Alternative Information and Development Center (AIDC), pointed to the complicated way the country’s fuel price is calculated, with various taxes attached. He also highlighted the state of the government’s finances.
Forslund echoed Groenewald’s comments. He said if you remove the fuel tax, “then you have to raise other taxes.” He said personal income tax would come into play for the government, particularly targeting high-income earners. Forslund said that reducing the country’s speed limits could help address the price of fuel in the country.
He said road accidents amount to more than 14,000 deaths a year. The economist said that by reducing speed limits to 110/90/70/50 km/h, as is the case in many other countries, you will reduce gasoline consumption and reduce deaths related to the circulation.
Fewer deaths would also draw attention to the levy of the Road Accident Fund which provides cover for accident victims.
In February, the Road Traffic Management Corporation touted a number of interventions aimed at reducing the number of deaths on the country’s roads, including speed limit changes.
The company said a program was underway to reduce speed in urban areas, particularly around schools and routes frequented by cyclists. The RTMC said the speed limit should be reduced from 60km/h to 50km/h on urban roads, and from 120km/h to 110km/h on main roads.
This is in line with a recommendation made by the United Nations that countries around the world should consider reducing their speed by 10 km/h to reduce the number of deaths, said Simon Zwane, director of communications at RTMC.
Alexander TSWT Investments said in a monthly economics and markets review that the improvement in total tax revenue continued at the start of the 2022/2023 financial year, increasing 8% year-on-year compared to the same period of the 2021/2022 financial year and 17.4% more than the average Collections over 5 years.
Significant increases were recorded for personal income tax, up 13% y/y, and VAT (8% y/y).
On the other hand, the general fuel tax fell by 9% year-on-year following the government’s reduction of R1.50 per liter in the tax on petrol and diesel prices for April and May, the reduction being further prolonged in June and followed by a moderation down to R0.75 per liter for July. The shortfall due to the reprieve is estimated at R4.5 billion.
As war rages in Ukraine, global oil prices have surged in recent months, he said. South Africa is a net oil importer and its price is in US dollars. In May 2022, world oil prices averaged $119.9 per barrel, leading to a sharp increase in the price of fuel, as the rand depreciated by 1.3% and averaged 15.67 rand against the US dollar.
In June, oil prices remained stubbornly high, while the rand hovers around 16:00 R against the dollar, pushed by fears of rising inflation. “Global oil prices will continue to rise due to the Russian-Ukrainian war, which means fuel inflation will remain sticky,” said Alex TSWT.
Read: What’s driving South Africa’s skyrocketing petrol prices and the cost of pumping your own fuel at a self-service station