Petrol prices in South Africa are at an all-time high – and taxes siphon 65% from every litre sold
- Only 35% of the price you pay at the pump is for fuel. The rest of the cost of petrol goes towards taxes and levies.
- In the 2020/21 financial year, a quarter of the petrol price was allocated to the General Fuel Levy, with the embattled Road Accident Fund siphoning a further 14%. Both levies were increased in April.
- The Automobile Association and Parliament's Portfolio Committee on Mineral Resources and Energy have both called for a review of how South Africa calculates its petrol prices.
- For more stories, go to www.BusinessInsider.co.za.
Petrol prices in South Africa are higher than they’ve ever been before – but so are the various levies and taxes imposed on every litre of fuel sold. As a result, only 35% of prices paid at the pump relate to the actual cost of imported petrol.
South Africa is an importer of fuel and relies on crude oil produced in Saudi Arabia, Nigeria, Angola, and Ghana to meet 90% of the local demand for petrol. South Africa’s basic fuel price (BFP) is determined by the Central Energy Fund (CEF) on behalf of the Department of Energy.
The BFP is calculated according to the import parity pricing principle, which includes costs associated with importing, transporting, insuring and storing liquid fuel acquired from foreign producers. This price fluctuates according to the international cost of crude oil and is heavily influenced by the rand’s strength or weakness against the US dollar.
Helped along by the global oil crash resulting from coronavirus-induced lockdowns and dramatically reduced demand, South Africa’s average BFP for petrol dropped to its lowest level in a decade during the 2020/21 financial year.
This decrease in BFP was, however, counteracted by increased taxes. Both the General Fuel Levy (GFL) and Road Accident Fund (RAF) Levy were recently raised, to R3.93 and R2.18 respectively.
How fuel levies impact the petrol prices in South Africa
Twelve years ago, the BFP accounted for 60% of the petrol price in South Africa. This ratio, between the BFP and levies, has since been inverted.
In the 2020/21 financial year, the average price of inland petrol per litre was R14.65. Of this, 25% was allocated to the GFL and 14% to the RAF levy.
The annually adjusted GFL generates more than R85 billion per year for the National Treasury and “is not ringfenced for roads as many believe” according to the Organisation Undoing Tax Abuse (OUTA). It’s per-litre price has doubled in eight years.
The RAF levy, which is used to compensate victims of road accidents, generates approximately R43 billion a year. Only a small portion of this fund actually ends up compensating victims. Its per-litre allocation has more than doubled in seven years.
And while the GFL and RAF levy are the most contentious petrol taxes, other levies including retail and wholesale margins, excise duties, carbon taxes, transport and storage costs accounted for a further 26% of average petrol prices in the latest financial year.
The retail margin, which determines the profit threshold on every litre of petrol sold by fuel stations to South African consumers, currently accounts for around R2.21 or 12% of the pump price.
Calls for change in petrol price calculations
Calls to change the way South Africa’s petrol price is determined and limit increases apportioned to the GFL and RAF levy were recently submitted to the Parliamentary portfolio committee on mineral resources and energy.
“Our view is clear that a comprehensive, long-term analysis of the components of the fuel price needs to be done as a matter of urgency, and that all calculations relating to the fuel price be audited to determine if they are still relevant and appropriate to South African conditions,” said Willem Groenewald, CEO of the Automobile Association (AA).
This proposed review includes reducing the cost of the RAF levy by privatising the embattled organisation and improving road safety. The AA also argued that while the GFL contributed significantly to petrol prices, South Africans were yet to see tangible benefits from the taxation.
“Currently R6.11 on every litre of fuel is taxed [through GFL and RAF levy] but there are several questions relating to the allocation and utilisation of these funds,” said Groenewald.
“Citizens have rightly questioned why they should be paying so much when they don’t see the results of what they’re paying for. It’s unfair.”
The committee has signed off on a plan to at least consider changes in the fuel pricing system.
The price of petrol is expected to drop by around 13 cents a litre in May, according to the AA which has reviewed the latest data presented by the CEF.
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