Would the government have the courage to slash the fuel price by 46% overnight, even if it slices the top layer off its tax revenue? Experts are sceptical – not least because this is a government neither flush with cash nor known for giving back money it’s made a habit of swallowing.
Yet none other than mineral and petroleum resources minister Gwede Mantashe, well known for his belief that the state remains at the heart of the economy, has said the government is considering lopping all the taxes off the R20/l petrol price, potentially reducing it to R14/l.
This is a significant development. Critics have long raised the issue, but this is the clearest indication yet from anyone in power that it’s not only possible but perhaps even likely.
“If the fuel price goes up, the price of living is increasing. It’s not good for society,” Mantashe told the African Oil Week in Cape Town. “Instead of buying a litre of fuel for R14, you buy it for R20 – [part] goes to the general levy, and another part goes to the Road Accident Fund. Our argument is, ‘You’re distorting the price of fuel. Let’s find a formula of separating these two things,’” he said.
Mantashe said the new government of national unity has already begun talks about reducing administered prices, including fuel and electricity, and this discussion will be concluded “in the shortest possible time”.
Taxes include a R3.96 general fuel levy on each litre of petrol sold, which goes into the general tax pool, and a R2.18/l Road Accident Fund levy, which goes to the chaotic state fund meant to compensate victims of car accidents. This, and other assorted levies, take the petrol price to R20.73/l from the R13.29 it would otherwise be, based on the rand and oil price.
For Mantashe – one of President Cyril Ramaphosa’s closest allies – to have mooted this, and reiterated it at a press conference later, suggests he has a degree of political cover for this move.
Layton Beard, the spokesperson for the Automobile Association, describes it as “hugely significant” that you now have a person of the seniority of Mantashe openly talking about slashing the tax on fuel.
“This shows, for the first time, that there is a level of concern in government about the fuel price, and that discussions are happening at a high level about this,” he tells Currency. “But having said that, what Mantashe said was too light on detail. You’d have wanted him to discuss the options they’ve talked about to fill that tax hole, and what the process would be.”
That, crisply, is why you shouldn’t bet on a wholesale scrapping of these taxes soon.
In the year to March, the government made R93.37m from the fuel levy. This is the fourth-largest contributor to all the money the government collects – after personal income tax, corporate tax and VAT – making up about 5% of its total tax revenue.
To eradicate this revenue would have implications for the country’s fiscus, South Africa’s debt levels and its credit rating. The economic trade-offs would be immense.
Beard says any plan to fill this hole by hiking personal income tax, or raising VAT from 15%, would harm a far greater swathe of people, and ultimately be counterproductive.
“I cannot see anyone in Treasury looking at this proposal, and what Mantashe said, and thinking this is a fabulous idea. They will ask where they will find alternative sources of income from – and there won’t be easy answers,” he says.
Rebates for taxis
Mathetha Mokonyama, head of transport systems at the Council for Scientific and Industrial Research, doesn’t believe we’ll wake up one morning and all fuel taxes will be scrapped.
“There’s no way the country could afford that. But what you could do is take a more strategic approach, where you look to offer rebates to the taxi industry, for instance. More than 80% of households are completely dependent on public transport, so this would be more targeted,” he tells Currency.
The way this would work is that taxi operators would get a rebate from the South African Revenue Service for their fuel taxes, in much the same way as some forestry companies and mining firms get rebates from the tax agency.
“This would also help formalise many taxi operators, who remain outside of the tax system, as this would give them an incentive to register. They would then be able to pass on savings to consumers, since 50% of taxi fares go to paying energy costs,” says Mokonyama.
He agrees with Beard that the alternative – levying a new tax in some other form – would be counterproductive.
While scrapping fuel taxes has the scent of populism about it, this does suggest the government has taken note of rising living costs – a breakthrough for a political class that often seems entirely unmoved by the economic travails of the wider population. This, after all, speaks to the government’s sensitivity to the shifting sands of tax morality: with corruption rife, resentment at paying a government that routinely squanders it is not an insignificant issue.
Beard says this is one of the reasons why fuel taxes are a sore point for South Africans, alongside the fact that neighbouring countries like Namibia import fuel from South Africa and yet charge their consumer far less for petrol – about R17/l.
“If these fuel taxes were used appropriately – to fix the roads, to maintain traffic lights, or even build hospitals – then there’d be a greater acceptance of it. But unfortunately, the levels of corruption in the country are such that people don’t associate this tax with providing value for society,” he says.
In this sense, slashing fuel taxes would be positive, as it would run counter to the narrative that this is a government only intent on frivolous consumption. The missing link in this narrative is how that chasm in the fiscus could be filled.
If Mantashe and Ramaphosa are at all serious about doing this, rather than simply talking about it to boost the ANC’s cosmetic appeal, they’d need to present a credible plan in the next few weeks that answers these questions.
Top Image: Gwede Mantashe minister of mineral resources at the Africa Oil Week in Cape Town, South Africa. Photo by Gallo Images/Brenton Geach