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Fuel may be taxed from 2018

Mar 09, 2017 Fuel, AA, Fuel Price, Economy, South Africa, Central Energy Fund, Budget,


Roy Cokayne


Future changes to the fuel price are likely, thanks to the government Budget announcement that it proposes to remove the value added tax zero-rating on fuel in 2018/19, in order to expand the VAT base.


The Budget review said this change would be subject to consultation leading up to the 2018 Budget and to mitigate the effect on transport costs, government would consider combining this with "either a freeze or a decrease in the fuel levy”.


South Africa has three main fuel taxes – the general fuel levy, the customs and excise levy on petrol, diesel and biodiesel, and the Road Accident Fund (RAF) levy, which fund general government expenditure, support environmental goals and finance the RAF.


The review said petrol, diesel and illuminating paraffin were zero rated for VAT and the difference to the standard rate was recorded as tax expenditure, when these items were sold to final consumers. “The main assumption used to calculate this item is that 20% of petrol sales and 90% of diesel sales were for business purposes (by VAT vendors) and would have qualified as an input VAT claim.”


This year’s Budget proposed an increase of 30c a litre in the general fuel levy and 9c a litre hike in the RAF levy, while it was proposed that the customs and excise levy remain unchanged at 4c a litre.


These proposed changes, if approved by Parliament as is likely, will increase the general fuel levy to R3.15 on 93 octane from R2.85 and on diesel to R3.00 a litre from R2.70 from April 5. The RAF levy will increase to R1.63 a litre from R1.54 on both 93 octane petrol and diesel.


It is the second consecutive year that an increase in the fuel levy has been announced in the Budget. Leonard Willemse, the senior tax consultant at Mazars South Africa, said the current zero-rating of fuel supply meant that if petrol was purchased by a consumer at a filling station, VAT was effectively levied on that purchase at 0% instead of 14%.


Willemse said that if a motorist filled up their tank in Cape Town, they would pay R13 a litre for 93 unleaded and were VAT to be levied at 14%, this cost would increase to R14.82 a litre, assuming that the value on which the VAT was levied was the price a litre inclusive of the general fuel levy as well as the RAF levy.


He added that although government had indicated in the 2017 Budget that it would consider freezing or decreasing the fuel levy, it remained to be seen whether this proposal was a viable option for expanding the VAT base. Willemse said the proposal could add fuel to the existing fire for consumers already struggling with high day-to-day living costs.

The Automobile Association said the increase in the general fuel and RAF levies, which come into effect from April 1 this year, was of concern. The association said the additional 30 cents a litre towards these levies meant motorists would now be paying R3.15 towards the fuel levy for every litre of fuel they put in their vehicles, and R1.63 a litre for the RAF levy.


“Effectively this means that for every litre of petrol, motorists are paying R4.78, or 35%, on indirect taxes. This is a huge amount, and calculated on a 50 litre tank of fuel, amounts to R239. South Africans already buckling because of the weak economy will now have dig even deeper in their pockets. This at a time when many are questioning government spending.”


The AA believes the time was right for a review of the fuel and RAF levies.

“Motorists remain easy targets for revenue collection although many are suffering as a result of increases to the fuel price. This is particularly prejudicial to motorists especially in the context of a lack of proper, reliable public transport. “Hundreds of thousands of commuters rely on their vehicles to get to and from work daily. These increases will not only impact on transport costs – including things such as bus and taxi fares – but are also putting inflationary pressure on other commodities that rely on road transport to be delivered across the country.”

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