The fuel tax was increased by more than the inflation rate every year from 2009 to 2020, except for 2014. As the economy and revenues cracked during state capture and the public debt burden climbed, the government turned to tax hikes to try to contain this.
Increasing fuel taxes was an easy one, which went relatively unnoticed until it became a big part of the pump price. In 2021, the increase was slowed to inflation; then as oil spiked globally after Russia invaded Ukraine, the tax was temporarily reduced in 2022.
Since then, we have had three years with no increases. So it was always bound to create a stir when finance minister Enoch Godongwana proposed an inflation-linked increase to raise about R3.5bn annually. Arguably, this is not the worst time to hike the fuel tax given that the petrol price is coming down, thanks to global factors. If Godongwana had to hold on to at least some of the additions to spending, without the benefit of VAT, the money had to come from somewhere.
But with political parties now focused on even the smallest piece of the revenue pie, any tax measure is going to be controversial. The trouble is that fuel taxes tend to hit the poor relatively more than the rich, because transport makes up so much of their spending, and in SA’s case this regressive effect is even greater for the fuel tax than it is for VAT because zero-ratings and social grants largely cushion the poor from VAT hikes.
But there are not a lot of options. The controversy over the fuel tax must therefore prompt a thorough review of the fuel price itself, particularly the substantial levy it includes for the dysfunctional Road Accident Fund.
Ideally, it will also prompt a broader and more informed debate over SA’s tax mix and its approach to tax policy.
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