Government cuts fuel levy by R1.50 per litre for two months

To help South Africans ‘adjust to the new reality’ – Godongwana.
Despite the reduction in the fuel levy consumers could still be looking at a 31c per litre increase in the price of 95 octane and 23c per litre on 93 octane petrol next week. Image: Waldo Swiegers/Bloomberg

Finance Minister Enoch Godongwana has announced a temporary R1.50 per litre reduction in the general fuel levy in an attempt to soften the impact on consumers of sharply increasing fuel prices.

Global oil prices have spiraled since Russia invaded Ukraine last month.

The temporary reduction might also reduce the pressure on the SA Reserve Bank to increase interest rates more sharply.

Econometrix chief economist Azar Jammine on Thursday welcomed the reduction, adding it will reduce the inflation rate for at least two months by about 0.4% – 0.5%.

Impact on inflation, interest rates

“That is useful because it will mean the inflation rate won’t reach the upper end of the inflation target and so it might limit interest rate increases compared to what might otherwise have been the case.

“Some people have been talking about a 0.5% [percentage point] interest rate increase and the Reserve Bank may not do so at all now,” he said.

Jammine said the government “is being fiscally prudent and very sensible” by planning to fund the reduction by selling a portion of the strategic oil reserves.

Godongwana told parliament on Thursday the government proposes to temporarily reduce the general fuel levy by R1.50 per litre from next Wednesday (April 6).

He said this will reduce the general fuel levy for petrol from R3.85 per litre to R2.35 per litre and reduce the general fuel levy for diesel from R3.70 per litre to R2.20 per litre for two months.

These amounts exclude other levies, such as the Road Accident Fund levy and the Carbon Fuel Levy.

Supporting a ‘phasing in’ of higher prices

“The intention of the temporary reduction of the general fuel levy is to support a phasing in of the fuel price increases that we are expecting in the short term,” said Godongwana.

“This will go some way in assisting South Africans to adjust to the new reality,” he said.

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Automobile Association (AA) spokesperson Layton Beard said any reduction is welcome but stressed “it is going to soften the blow but not take the pain away”.

Beard said the forecast fuel price increases for April – as at March 31, based on the under-recovery – is R1.81 per litre on 95 octane petrol and R1.73 per litre on 93 octane.

But he said the fuel levy reduction means consumers will still be looking at a 31c per litre increase in the price of 95 octane and 23c per litre on 93 octane petrol.

Beard said the projected price increase for 50ppp diesel, based on the under-recovery, is R3.12 per litre and after reducing it for levy reduction “still leaves you with a massive increase of R1.62 per litre”.

R6bn hit to the fiscus

Godongwana said the partial reduction in the fuel levy will cost about R6 billion in foregone tax revenue for the two-month period.

He said Minister of Mineral Resources and Energy Gwede Mantashe has proposed that the revenue foregone be recouped through a sale of strategic crude oil reserves held by the Strategic Fuel Fund, a subsidiary of the Central Energy Fund.

The sale would be required to raise around R6 billion, he said.

Godongwana stressed that the combined effect of the two proposals will not have an impact on the fiscal framework adopted by parliament following the 2022 Budget.

He added that the mineral resources and energy minister proposes to implement a package of additional measures from June 1, after the expiry of the temporary fuel levy reduction.

These measures include:

  • A reduction in the basic fuel price of 3c/l in line with the recommendations of the review done by the Department of Mineral Resources and Energy (DMRE).

  • The termination of the demand side management levy (DSML) of 10c/l on 95 unleaded petrol sold inland.

  • The introduction of a price cap on 93 octane petrol, following from the previous DMRE proposal and consultation, which will allow retailers to sell at a price below the regulated price.

  • The termination of the practice to publish guidance by the DMRE 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 considered by the DMRE to reduce the price pressure for illuminating paraffin over the medium term.

“We are doing all of these things in line with our overall commitment to keeping money in the pockets of South Africans during these trying times, while at the same time restoring the health of our public finances,” Godongwana said.

Organisation Undoing Tax Abuse (Outa) CEO Wayne Duvenage welcomed the reduction because it will provide welcome relief to consumers but said Outa would have hoped the levy could have been reduced further.

He said it would have cost the government about R7 billion a month to scrap the levy entirely but acknowledged “the government is hard-pressed for cash”.

“For the first time, these high fuel prices have got government listening to society and thinking about it. We also saw in February that the minister never increased the fuel levy or the RAF levy. These are calls we have been making for some time.”

Read: Ukraine update: US eyes oil release, says advisers fear Putin

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COMMENTS   1

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What a bargain !!
Rob us of R 3.70 per liter and give us R1.50 back !!
We are so thankful for not taking all our money !!!!!!!!!!!!!!!!!!

End of comments.

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