This ‘tax alternative’ could end the fuel levy and cut petrol prices in South Africa

The South African government could reduce petrol prices by imposing a kilometre-based road user charge instead of the current per-litre levy, bringing an end to the general fuel tax in South Africa.

Taxes and levies account for 27% to 28% of the cost per tank of petrol going to the government, depending on which fuel you choose, with the majority of the pump prices attributed to the basic fuel price (55% and 60%).

During the significant fuel price increases in 2021, Outa, a civil action group, called for a halt to the annual fuel levy increases.

“While we understand that we are a cash-strapped nation, we can no longer afford to burden society with higher taxes and levies applied to the price of fuel,” said Wayne Duvenage, Outa’s chief executive.

Duvenage also noted that the basket of levies and charges by the government has collectively increased by over 125% over the past decade – resulting in the collective cost of levies and surcharges of more than R10 per litre of petrol before the basic fuel price is added.

In November 2023, little has changed, and the cost of levies and surcharges are still over R10 per litre, as it currently sits at R10.95/l for 95 unleaded petrol.

Additionally, at R3.95, the GFL represents around 16.5% of every litre of petrol sold in South Africa. The RAF levy priced at R2.18 a litre represents around 9.1% of every litre of fuel sold.

According to the Automobile Association (AA), the two main levies will deliver around R138 billion in revenue to the government, with the national treasury estimating approximately R92 billion of this going to the GFL over the 2023/24 financial year, and the rest to the RAF.

Kilometre-based alternative

Alongside the affordability argument against the current GFL, Professor Stephan Krygsman – an expert in Transport Economics in the Department of Logistics at Stellenbosch University – noted that the fuel levy has been exhausted as a long-term sustainable road user charge and is becoming increasingly unproductive as vehicles’ fuel efficiency increases and electric and hybrid vehicles emerge.

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

Speaking to BuinessTech, Krygsman proposed one way to replace the fuel levy would be to introduce a kilometre-based road user charge system. ​

“There are a lot of benefits to a kilometre-based system, including that it is a fair process and that it is possible to implement variable charges, such as peak period charges and charges for specific areas such as the CBD,” he said.

Krygsman noted that he and his research team are currently running a pilot programme using a monthly road user charge based on the type of vehicle, the time of day of travel, the type of road and the location, and the results are very accurate.

He added they would soon be starting another pilot but with a flat fee per kilometre.

When asked if he still feels a kilometre-based system is a viable alternative to the current fuel levy, he said yes.

“From a technical perspective, implementing the kilometre-based system is entirely possible – South Africa has many problems, but technology is not one of them. In fact, we are quite advanced,” he said.

The main issue is whether the government can implement the system and manage public perception – because it is really very clear that people have very little faith in our Government, he added.

The current general fuel levy costs R3.95 per litre of petrol sold in the country, accounting for anywhere between R153 and R316 when filling a 40 to 80 litre tank.

Various fuel efficiencies, times and roads travelled would lead to different per km rates being charged, but Krygsman noted that the current pilot is coming to an end soon, and the outcomes will provide data on the costs.

A previous study conducted by the expert in 2016 showed a rate of around 23 cents per kilometre – however, many variables have since changed.

He also noted that he will be launching a website on the 1st of December 2023 – which is a demonstration website – and then a fully operational website on 1 Feb 2024.

This is where the public can take part in the experiment and receive monthly road user charge invoices.

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