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Fuel levy needs a rethink

The fuel levy contributes 5% to the national coffers, but the days of it being easy revenue for government are numbered.

The fuel levy or tax on each litre of petrol is an important revenue stream for government, but this stream could dry up in the near future, says professor Stephan Krygsman, a transport economics expert in the department of logistics at Stellenbosch University. Krygsman is doing research on the ways in which road users are being taxed and whether these are efficient.

He says even though there is an increase in the number of vehicles on the country’s roads, the fuel levy, which contributes 5% to national tax revenue, could be gone in 10 years. The fuel levy is the fourth biggest source of income for government after income tax, company tax and vat.

Krygsman says the fuel levy remains popular with government because it’s a revenue source that’s difficult for people to evade. It’s also simple and easy to the levy charges, and administration costs are very low. It used to be a fair tax which reflected the costs of road use.

But Krygsman believes the fuel levy has probably exhausted its time as a long-term sustainable road-user charge. It’s likely to become increasingly unproductive as vehicles’ fuel efficiency increases and the use of electric and hybrid vehicles takes hold.

“In 2000, the fuel levy was at 100% productivity, but since then there’s been roughly a 1.1% decrease in annual productivity,” he says. “By 2040, greater fuel efficiency will reduce the fuel tax by almost 48% per vehicle.”

Electric vehicles could hasten the demise of the fuel levy. They use less or no fuel at all, resulting in less fuel consumption per kilometre, which means the fuel levy income will decrease.

“It’s being estimated that by 2040, electric cars could make up 30 to 40% of the world’s two billion cars. Together with the increased fuel efficiency of internal combustion vehicles, this would translate into savings of millions of barrels oil a year. And, of course, savings in fuel levies and taxes.”

Krygsman points out that countries like Norway, the Netherlands, Germany, France and the United Kingdom are already putting plans in place to ban sales of diesel-powered vehicles by 2040. In some countries, diesels cars may be banned from city centres as early as 2025. 

He says government will need to find alternative ways to generate funds for the construction and maintenance of South Africa’s roads.

“There is a need to move away from a general fuel tax that is dependent on fuel sales to a road-user pricing system that reflects the actual costs that road users and society incur.”

Kilometre-based system

Krygsman says one way to replace the fuel levy would be to introduce a kilometre-based road-user charge system.

“Road users would be charged for the distance they travel. They would pay per kilometre, and get an invoice at the end of the month.”

With an onboard GPS, it will be possible to track different vehicle types in charging for actual road use. The charge would be based on the distance travelled, the type of vehicle (motorcycle, car, heavy truck), the weight of the vehicle, the time of day, and where the travelling takes place (cities or rural areas). This data would then be transmitted through a cellular network and used to calculate the amount payable by each road user.”

“If this sounds too far-fetched, just think about cellphone companies billing you for the data you use or the monthly water and electricity bills you receive from your local municipality,” says Krygsman. “Why can’t we apply the same principle to roads?”

He adds that with a distance-based system, the vehicle’s fuel efficiency won’t influence the charge and everyone will pay according to the type of vehicle they have and the distances they travel.

“If we set the right price, this system could deliver sufficient income for government.”

Krygsman says several issues would need to be considered before such a system could be implemented, including privacy and ethical considerations, user needs, technical system requirements and the role of government.

Distance-based weight levies have already been implemented in some countries, and a considerable amount of research is being done internationally in this area.

Krygsman’s research group has started a pilot programme in the Western Cape to test the kilometre-based charging system.

“We will have to find another way to pay for road usage,” he says, adding that people are becoming more and more suspicious about the fuel levy and fuel-burning cars may not be around in the future. “We have to start working on new alternatives.”

* Dr Alec Basson is senior science writer at Stellenbosch University. 

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Or maybe understand that electric cars will need charging. Which will drive up electricity usage. Electricity is not VAT exempt. Public charging stations will have to be installed.
A surcharge on stations generating their own electricity can also be applied and quite frankly this I think is both simpler and more palatable than charging per kilometre.
Charging per kilometre will basically destroy the entire logistics sector. And there are many types of jobs that require long hours on the road.
The unintended consequences of a proposal like this will be a disaster, mark my words.

The fuel levy is not ring-fenced for road maintenance. It should be, it was supposed to be, but its not.

Plain ans simple….petrol price increases are a symptom of a weak economy. Our weak economy are due to utter poor governance.

The use of electric and hybrid vehicles takes over? I’m not sure where you’re getting your information but this is VERY far from the reality I live in.

At present there is precisely ONE EV on the market, the BMW i3, which starts at R600K. Nissan is still on the fence as to whether the new LEAF will ‘work’ for this market (why, I don’t know, given that fuel prices are just going skyward) and that is the only other all-electric vehicle for most people (even though it will likely sell for between R450 – R500K) that we will likely see any time soon.

As for hybrids, Toyota/Lexus is the only company with hybrids in SA and they dont sell many of them. Hyundai now has an EV, the Ioniq (also available as a hybrid) but who knows if it will be introduced here. VW, Ford and others have EVs for the N. American and European markets but no sign of them here.

The govt has not helped in any way by introducing subsidies on these vehicles to make them more feasible, which they should be doing. If anything, they penalise them with added taxes. As usual the govt is only interested in fleecing us citizens for everything it can get, environment be damned.

If S. African motorists had any brains they would be loudly demanding that manufacturers bring in EVs and hybrids but they still think diesel in the answer, even though it pollutes far more than petrol engines do, and they aren’t exactly great. The petrol price is not coming down any time soon, count on it.

Any articles on what the price/km is on an EV in SA? Then I can at least compare it to my AA price/km using fuel.

Also, no problem with waiting to catch up with the world here, they can get be the early adopters with the problem EVs with their short range, short-life batteries and cars that are too silent and knock over pedestrians. In 5 years time when they’ve sorted that out we can just start bringing in the best models. We did it with fuel injection (I remember people telling me carburettor vehicles were more fuel efficient), seatbelts (weren’t a requirement), so I expect nothing less in terms of EV uptake in SA.

That s very nice talk for the long term. Bottom line we need to fill the huge fiscal hole and at least the taxis and millions of other non taxpayers pay something with fuel. Its cheap to collect and we are already paying income tax at crazy levels. At +-USD 55k( a rubbish salary globally) we hit 41%!!45% at USD 115k-its theft as we get nothing in return-no medical, security, education and a SAPS of tier 5 security guards!

Bottom line-we are going broke! Thank you ANC leadership!

Interesting article. Not that EV’s has any “hold” on the SA car market..hardly.

Yes, newer vehicles are more fuel efficient, but the number of vehicles added to the road network yearly, offsets that I think. (…I’m NOT experiencing that traffic is getting less in cities 😉

Making use of data is an innovative billing approach. Bear in mind, data in SA is on the expensive side on global purchase power parity. (Read another unrelated article that self-driving technology will need a fast 5G-network to operate on. That could only imply heavy data usage while driving.)

You may be saving say R200 p.m. on fuel-levies, but your data-usage may go up R400+. Is this a saving??

…and what will stop THEM from LEVYING mobility tax on electric cars?

SANRAL has been predicting the demise of the fuel levy for 15 years. Over that time, fewer than 1000 electric vehicles have been sold in South Africa and the alleged massive fuel economy improvements have been impressive in the laboratory and invisible in real life. All we have seen is the gap between manufacturer-claimed consumption and actual consumption on road tests by motoring publications increase from 15% to 40%. The negligible variations in fuel levy income have moved in lockstep with economic conditions.

Fuel levy income is secure, and it will take at least 25 years for EVs to even begin to dent it in this country.

Economists should focus on the essentials: South Africa is on the brink of an IMF bailout and that circumstance is likely to persist for up to two decades. Neither the public nor private sector has tens of trillions of Rands to fund a wholesale switch to electric vehicles.

Prof Krygsman’s theories are also unworkable in South Africa because they presume the following:

– available electricity to charge millions of EVs
– well-maintained municipal electricity grids that can withstand an additional 30A current draw per household
– EVs which have sticker price parity with liquid fuelled vehicles

The chance of all this being a reality in South Africa before 2050 is zero. In any event, discussing the fuel levy as a “roads funding” mechanism is absurd. It doesn’t go to roads funding, it goes to General Revenue, which means it can be used for anything. In practice, this has meant “anything but roads funding.”

Arrest electrical vehicle drivers for tax evasion:)

The JMPD will pull you over in your EV, and write a ticket for “shocking behaviour” for avoiding fuel-tax 😉

Personally, I can’t wait for affordable electric cars. There is a street light right next to my driveway…

…am glad you “see the light” *lol*

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