#Budget2017: Fuel levy hike almost certain

A garage in Braamfontein, Johannesburg. Motorists are almost certain to pay more for fuel after this year's budget is announced, as a rise in the fuel levy is considered to be a certainty. Photo: Mujahid Safodien

A garage in Braamfontein, Johannesburg. Motorists are almost certain to pay more for fuel after this year's budget is announced, as a rise in the fuel levy is considered to be a certainty. Photo: Mujahid Safodien

Published Feb 21, 2017

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Pretoria - A steep increase in the fuel levy is one of the measures Finance Minister Pravin Gordhan might use to raise the revenue required to balance the government’s books.

Azar Jammine, the chief economist at Econometrix, said theoretically, a lot of revenue could be raised from the fuel levy without hiking the fuel price too much.

Jammine said the forecast was that R64 billion would be raised through the fuel levy this year and increasing the levy by only 10 percent would raise an additional R6.5 billion in revenue for government.

He added that at least R13 billion would be raised if the fuel levy was increased by 20 percent.

With the fuel price levy at about R2.75 a litre, a 20 percent increase in the fuel levy would mean a 55c a litre hike in fuel prices, he said.

“This will go a long way to raise the R28 billion extra tax revenue the government needs as mentioned in the medium-term budget policy statement.

“It is also environmentally friendly, because it will get people to use less fuel and get people to use more fuel efficient cars, whether by switching to newer more fuel efficient cars or to small cars,” he said.

However, Jammine said the easiest way for the government to raise extra tax revenue was by increasing the VAT rate.

Jammine said a 1 percent increase in the VAT rate could raise an additional R21 billion to R22 billion.

“It’s not expected, because the unions are against it and it is seen as hammering the poor.

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“To the same extent, this argument can be used in terms of the fuel levy, which is why I expect the government to not think of going for a 20 percent increase but something less,” Jammine said.

He said that the government could also raise about an additional R15 billion in tax revenue by not adjusting the tax brackets to take account of inflation.

Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa, said he did not anticipate any direct measures that would impact on the motor industry, but indirect measures.

Vermeulen said the fuel levy and sin taxes on alcohol and cigarettes and tobacco were always increased in the budget. He said it was a foregone conclusion that taxes would rise in the Budget, but expressed the hope that Gordhan did it in such a way that it did not impact too negatively on the economic growth momentum and therefore on consumer demand.

Vermeulen said that the government had a lot of instruments at its disposal to increase its tax revenue, but hoped it did not significantly use one measure, but spread the tax increases over a number of measures to minimise the fallout. He said that a 1 percent increase in the VAT rate would raise an additional R29 billion in tax revenue when the government was looking to raise an additional R28 billion.

Neutral measure

“It’s the most neutral measure, but the unions are against it. Provision could be made to exempt foodstuffs,” he said.

Vermeulen said there has been speculation about a wealth tax and increasing personal income tax.

“If he [Gordhan] does not make any adjustments to personal income tax rates, he doesn’t have to increase tax rates and still gets the benefits of additional revenue.

“He has to be innovative and balance the key imperatives of supporting growth while finding additional tax revenue. The South African economy needs to move into a revitalisation phase. The country can’t have (a continuation) of the growth of 0.4 percent in gross domestic product in 2016.

“It would help if there was less government waste and more discipline and oversight management. Billions of rand have gone missing,” he said.

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