Time for government to cut fuel taxes and tariffs!

As we face yet another rise in the fuel price, CHRIS HATTINGH says it’s high time that government cut fuel-related taxes and tariffs

On November 3 this year the price of a litre of petrol increased by R1,21, and the price of a litre of diesel increased by R1,48. The price of illuminating paraffin increased by R1,45 a litre. After the increase, a litre of petrol now costs R19,50. All the combined levies involved in the petrol price are now at R10,10 for each litre of petrol – this is 126% higher than 10 years ago. Over the same period, the basic fuel price increased by less than 50%. Levies – amongst which are included the Road Accident Fund (RAF) and Petrol Levy – now constitute 52% of the fuel price, up from 42% a decade ago.

While other factors play a role in the petrol price – such as the increased global demand for crude oil and a weaker rand – a big contributor is the amount of taxes and levies applied by government. In light of continued pressures on the economy and South African businesses, citizens and trade prospects, it would be prudent for the government to eliminate the taxes and levies that it collects as part of the petrol, diesel and paraffin prices. It is unrealistic to expect government to cut all spending and welfare overnight, but it must afford consumers some measure of relief as soon as possible. With South Africa’s already high general tax burden, there is no good reason to further punish taxpayers when they fill their vehicles in order to be productive members of society.

Lower tariffs and duties needed

As part of South Africa’s participation and implementation of the Africa Continental Free Trade Area (AfCFTA), the government should be looking at every possible opportunity for lowering tariffs and duties that inhibit the flow of goods and services across borders. This includes those Non-Tariff Trade Barriers (NTBs) such as border-crossing costs, and fuel prices that make it more difficult for (especially) trucking activity to flow to and from the country’s ports, and across borders with our neighbouring African countries.

Economist Mike Schüssler suggests the productivity of ports and borders could be drastically improved – and could save truckers billions in lost time and lower the costs of doing business – by implementing a “24-hour one-stop” setup at border points. Improving the security of the rail networks is also crucial.

When the fuel price goes up, it affects every business, job and entrepreneur in the value chain – bigger business may be able to absorb such costs, but other small-to-medium enterprises simply won’t be able to cope. Given the country’s more than 44% unemployment rate, it is incumbent upon government to seize every chance it has to make the broader business and trade space more conducive to activity, job creation and investment. The fact that much of the government-imposed additions to the fuel price goes to collapsed institutions like the RAF is no consolation.

None of the Localisation Master Plans aim to address tariff and other duty barriers on trade. Instead of favouring certain businesses, industries and products through subsidies (and thus making them more brittle in the face of future shocks and global competition), the government could better promote local job creation by eliminating the taxes it collects as part of the fuel price.

While localisation might achieve some job creation in the short term, these jobs will simply be shed again in the context of a fundamentally very difficult, anti-business and anti-trade environment. There is very little to no benefit to be gained from short-term thinking, when a lot more long-term, sustainable growth and investment could be encouraged by placing South Africa on a more trade-friendly, easy-to-operate environment. Government could, for example, proceed much faster with granting permits for self-generation up to 100 MW, freeing up mines and farming communities from the Eskom monopoly.

Scrapping the RAF levy

Global container costs will remain high for at least the next few months. To mitigate such external factors, the government must cut those costs that are within its power to either drastically lower or eliminate. Stellenbosch University professor and transport specialist Stephan Krygsman has pointed out that South Africans could be paying R3,50 to R4,00 per litre less for fuel, and that government could lower the price by scrapping the RAF levy and deregulating prescribed profit margins. By dropping those, the government would encourage competition between garages, which would in turn lower prices and possibly incentivise other forms of improved service delivery. The downstream benefits of robust competition are a well-known but often largely underestimated and underappreciated feature of the free market.

Lowering or eliminating these taxes would be a great boon for lower-income citizens, many of whom use taxis as transport to and from their place of work. When the fuel price increases, the cost eventually works its way down to the daily commuter. For a government ostensibly concerned with the plight of poorer people, cutting fuel taxes and levies would be a positive progressive step that could go a long way towards stimulating economic activity. A good overall goal for which to strive would to lower government consumption, lowering the tax-to-GDP ratio, and thus adding to the incentive for government to lower taxes across the board.