Outa warns government over fuel levy increases as petrol price soars

Organisation Undoing Tax Abuse (Outa) says government has pushed the envelope too far on fuel levy increases and should seriously consider pulling back on seeking additional tax revenue, after the price of diesel increased by R1.48 a litre, illuminating paraffin by R1.45 a litre and petrol by R1.21 a litre on Wednesday.

Outa says the weak value of the rand and government’s incessant desire to increase taxes on motorists through fuel-related levies over the years are the two local factors contributing to the current high fuel prices. The weak rand is largely the result of government’s poor economic policy and management of the country’s fiscal affairs.

Although government cannot control the price of Brent crude – which stood at $83.40 per barrel recently, increasing by about 70% from $49.20 in January – the international price of oil was significantly higher than it is now a decade ago.

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In November 2011, Brent crude was $109 per barrel, about 31% higher than today, but fortunately the rand was a lot better off then at R8 to the US dollar, compared to today’s exchange rate of R14.72, which is about 84% higher.

“If we had the same rand-dollar exchange rate today, the current petrol price would be around R16.00, about R3.50 lower per litre of 95 octane petrol inland. This is the price we pay for a weaker currency,” Wayne Duvenage, CEO of Outa, says.

The weaker rand and higher cost of oil caused the basic fuel price (BFP) component of our petrol price to move from R6.29 per litre for 95 octane petrol (inland), which made up 58% of the price of petrol at R10.77 a litre a decade ago, to R9.37 per litre, 48% of the current price of R19.47.

This shows that the BFP component increased by 49% over the past decade, despite the fact that our currency cost is 84% higher than a decade ago, but Duvenage says we should be concerned about the 126% increase in the various levies and taxes applied over the past decade.

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He says in November 2011, the combined cost of the General Fuel Levy, the Road Accident Fund (RAF) levy and other levies amounted to R4.48 of each litre of 95 octane petrol. Today that amount is R10.10, R5.62 (126%) higher than a decade ago.

“In addition, the current fuel tax revenues the state relies on, in particular the General Fuel Levy of around R88 billion per year and the RAF levy of around R45 billion, will come under significant pressure over the coming decade as the transition to electric vehicles becomes a reality.”

Duvenage says government will then find it hard to replace these revenue streams through other mechanisms and should seriously consider zero increases to fuel levies going forward, while exploring innovative ways to increase efficiency and reduce reliance on these levies.