Outa calls for R1.50 fuel levy reprieve to be extended for July

Consumers are set to pay around R26.70 per litre of fuel this month if the government reduces the fuel price reprieve to 75 cents per litre as planned.

The fuel levy reprieve of R1.50 per litre has been in place since April, but that’s due to change to 75 cents this month.

“Should the Minister of Finance Enoch Godongwana reduce this to a reprieve of 75 cents per litre from 6 July to 2 August, as planned, we can expect a petrol price hike of around R2.50 in July, thereby pushing the price of 95 octane inland from R24.17 per litre to R26.70,” said non-profit group, Organisation Undoing Tax Abuse (Outa).

The Russian invasion of Ukraine continues to keep the international price of oil bouncing between $110 and $120 per barrel, but for most of June, this price has remained closer to $120, around 7% up in May.

Geopolitical activities

“Coupled with the increased price of oil, the rand was weaker to the US dollar for most of June, giving rise to under-recovery in the current price of petrol. These factors are expected to increase the price of petrol by an estimated R1.75 on 6 July,” explains Outa.

Outa says it understands that keeping the reprieve in place would negatively impact the country’s fiscus by about R2.8 billion monthly if the R1.50 reduction remains in place.

But the reprieve must remain in place while petrol prices remain above R22 per litre.

“Accordingly, we believe the Minister should not reduce the fuel levy reprieve to 75c in July but wait until the geopolitical factors, combined with an improvement in the rand exchange rate, can bring about a significant reduction to the price of petrol,” said Outa.

The price of petrol is subject to taxation or levies in virtually every country. In South Africa, the general fuel levy is the fourth largest tax source for Treasury (after PAYE, VAT and company tax), generating around R89 billion per annum for the fiscus.

Runaway costs of RAF

“Outa is not naïve enough to believe the state would scrap the entire fuel levy going forward, or at least certainly not during these times of heightened fiscal pressure. However, the fuel levy is one of the tax elements that government can adjust at short notice.”

The organisation also wants government to find a solution to the runaway costs of the Road Accident Fund (funded by another fuel levy of R2.18 per litre).

“This levy should either be reduced or not tied to the price of petrol,” said Outa.

Outa has previously asked the government to deal with the runaway increases pertaining to the retail margin, which currently sits at R2.29 per litre.

This margin is due for another increase later this year, and Outa believes the retailers have scored handsomely with average annual increases of 13% per annum for the past 14 years.

“If any increase is granted to the retail margin, this should be contained to below inflation, to offset the unreasonable increases extended to the petrol retail industry over the years,” it concluded.

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