The effects of the fuel levy increase on food prices — a major concern of those opposed to the hike — will be mitigated by the diesel refund scheme for key primary sectors such as agriculture, the Treasury says. Government subsidies for public transport will also assist the poor.
The Treasury’s newly appointed deputy director-general for tax and financial sector policy, Chris Axelson, defended the increase in parliament on Friday, upon criticism of it during last week’s public hearings on the fiscal framework by the two finance parliamentary committees.
The budget tabled by finance minister Enoch Godongwana increased the fuel levy for the first time in three years. The levy on petrol was increased by 16c to R4.01 a litre and by 15c to R3.85 a litre for diesel as from June 4.
The Treasury estimates that this will generate R3.5bn in the 2025/26 fiscal year and R12bn over three years.
Axelson noted that the diesel levy refund of 80% for the agriculture sector would be expanded to 100% at a cost of R1bn in 2026/27. That would offset the effects of the fuel levy hike on food prices.
“The total taxes as a proportion of the price of diesel does not take into account tax relief provided through the diesel refund scheme for key primary sectors such as agriculture, and mining for both the general fuel levy and the RAF levy,” a Treasury submission to parliament noted.
“This was introduced to preserve the international competitiveness of primary sectors through fuel levy relief and to ensure an equitable RAF [Road Accident Fund] levy regime for road use for qualifying sectors. The effective fuel taxes as a percentage of diesel prices is therefore much lower.”
The Treasury also noted that subsidies to the transport sector helped ensure affordable, accessible and efficient public transport. Subsidies are provided to bus services, the Passenger Rail Agency of SA and the minibus tax industry. The estimated medium-term allocation to bus services is R25.4bn, rail services R66.1bn and for taxi recapitalisation R1.1bn.
Opposition political parties and two institutions created by statute — the Financial and Fiscal Commission and the Parliamentary Budget Office (PBO) — have criticised the budget’s proposed fuel levy increase as a regressive tax that will harm the poor.
The EFF is contesting the increases in the Western Cape High Court, asking for it to be urgently suspended on the grounds that it has not been approved by parliament as required by the constitution but just announced unilaterally by the finance minister.
Axelson noted the Customs & Excise Act allowed the minister to set interim fuel levy adjustments via the government gazette. These changes had to be reviewed and, if accepted, formalised in the Taxation Laws Amendment Act.
“Parliament may decide to intervene to cut short the period for which the fuel levy adjustments applies or decide that it does not lapse as provided for in terms of section 48(6) of the Customs and Excise Act. This process ensures constitutional oversight and maintains the principle of parliamentary control over fiscal policies,” Axelson said.
He noted that the fuel levy had not been increased for three years, which meant a cost to the fiscus of R11.5bn. It needed to be adjusted for inflation “to keep the effective tax rate appropriate given the objectives of the instrument”.
“Not adjusting the fuel levy would have reduced revenue by about R3.5bn in 2025/26, which would have required a smaller increase in expenditure,” he said. The withdrawal of the proposed VAT increase left a R74bn hole in revenue, which meant additional sources of revenue needed to be found.
SA’s fuel taxes were low compared to most other countries, he said.
The fuel levy is the fourth-largest revenue instrument in SA, contributing about 5% to total tax revenue, according to the Treasury’s submission. Fuel levy revenue is also shared with metropolitan municipalities.
Axelson stressed the need to look at the tax system and the budget as whole, not necessarily at a single instrument. “The budget overall is progressive and the bulk of the tax increases in this budget are on personal income taxpayers. Overall the tax system is highly progressive and we need a diversified tax base. We need to balance our tax mix,” he said.
He noted that SA’s tax system was regarded as very progressive.
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