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The hidden cost of fuel: R4.78 a litre in taxes!

Industry news
Johannesburg – The price of petrol may have gone down by 24 cents a litre on the first Wednesday in April, but it could have been a lot more.

That’s because the taxes we pay on each litre of fuel went up at the same time.

In his budget speech in February, former finance minister Pravin Gordhan announced a 30 cents per litre increase in the General Fuel Levy, and a nine cents per litre increase in the Road Accident Fund Levy, to take effect on the 5 April. So, in effect, the cost of a litre of petrol went down by 63 cents, but the taxes went up by 39 cents.

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But where does that 39 cents go to? What’s it for?

The General Fuel Levy is a tax you pay on every litre of fuel you buy – and it has just gone up from R2.85 to R3.15. Worse still, it goes straight to the National Treasury, to be treated as a general tax and not, as most people assume, specifically for building and maintaining roads.

You also pay a separate levy – which has now gone up from R1.54 to R1.63 a litre – which goes to support the Road Accident Fund. This is intended to compensate victims of road crashes, and it’s no secret that the fund is bankrupt, so either R1.63  isn’t enough or the fund isn't being managed properly.

The bottom line is that a litre of petrol now costs R13.08 inland, of which R4.78 – or 35 percent – goes towards taxes. There’s no VAT on fuel; that really would be adding insult to injury, but there has been talk of it happening.

But why does the price of fuel go up and down like a yo-yo?

The price of fuel in South Africa is adjusted on the first Wednesday of every month, based mainly on international oil prices and the rand/dollar exchange rate (for the preceding month) because South African fuel companies have to pay for it in dollars.

The Basic Fuel Price is calculated on the cost of buying the fuel, shipping it to South Africa from the Mediterranean, the Persian Gulf or Singapore, and extras such as insurance, storage, wharfage (that’s parking fees for oil tankers) and the cost of off-loading from the tanker to the storage tanks at the refinery (that’s why both South Africa’s major refineries are right next to major ports).

But wait, there’s more: 

As of 5 April the Basic Fuel Price was R5.36 a litre. Then you still have to pay customs and excise duties (more taxes!), as well as the cost of transporting the fuel from the coast (that’s why it costs more inland), interim storage, and a painfully thin retail margin for the garage owner.

All of which adds up to R2.55 a litre at the coast and R2.94 a litre in Gauteng.

But whether the cost of fuel goes up or down on the first Wednesday in May will depend on the fluctuation of international oil prices from day to day (that’s a calculation that still has to be done) and the rand / dollar exchange rate – and given the recent drop in the value of the rand, it’s more likely to go up than down. Sorry about that.

IOL Motoring

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