Fuel levy hike about to hit: Will you survive the squeeze?

Tough times are ahead for South Africans, as the fuel levy increase takes effect on Wednesday, 4 June.

Many would believe that the fuel levy hike will impact only those who own cars; however, it will affect everyone, as businesses may need to increase the prices of products and services to offset the costs incurred by the hike.

Finance Minister Enoch Godongwana announced the increase in his third budget speech in May. General levy for petrol and diesel will be increased to R4.01 per litre and R3.85 per litre, respectively. However, the EFF has approached the Western Cape High Court in an attempt to interdict this increase.

This is the first time in three years that the minister announced the increase. In previous budget speeches, he had reserved the right to increase the fuel levy, as he did not want to burden South Africans who were already struggling to cope with the high cost of living.

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Why increase the fuel levy?

Godongwana’s decision to increase the fuel levy comes after his decision to increase the Value Added Tax (VAT) was met with criticism and was sent back to the drawing board to find an alternative that would not significantly harm consumers’ wallets.

VAT was supposed to increase by 0.5% this year and by another 0.5% next year. This meant that everyone would be directly impacted, as every product and service was set to increase in price. However, the government would be able to collect the necessary revenue.

When it comes to the fuel levy hike, not everyone is directly impacted. However, everyone will be squeezed sooner or later. The Treasury estimates that it will generate an additional less than R4 billion, which is significantly lower than the revenue estimated from the now-withdrawn VAT increase.

How will the fuel levy hike impact consumers?

Professor Bonke Dumisa, an independent economic analyst, told The Citizen that if the EFF’s court challenge fails, the fuel levy hike will result in inflationary pressures.

“The logistics sector will pass on the increased fuel prices to the end-users, which in turn will have the same negative effects as the implementation of the earlier proposed 2% VAT increase or the later proposed 0.5% VAT increase this tax year and another 0.5% VAT increase next tax year.”

Fuel levy is a tax charged on every litre of fuel sold, with a portion going to the government and another to the Road Accident Fund (RAF levy) to compensate victims of motor vehicle accidents.

It amounts to 18% of the retail price, while the RAF levy is about 10%.

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Is the increase really bad?

Professor Waldo Krugell, an economist at the Faculty of Economic and Management Sciences at the North-West University (NWU), told The Citizen the impact of the fuel levy hike will not be that bad.

“It appears that the impact will be mitigated by a lower basic fuel price. The relatively low crude oil price and a stronger rand-dollar exchange rate are helping to keep the pump price stable and maybe even a bit lower again this month.”

Based on current over-recovery trends, consumers should consider themselves lucky if petrol sees a marginal decrease of 3 cents per litre in June.

There is even the possibility that the fuel levy increase could result in a small hike in petrol prices if the rand weakens or global oil prices rise further this week.

Legal battle

The EFF previously successfully opposed the VAT increase in court, and it is hoping for the same result in the court case.

In the paper filed, the party outlined that the fuel levy increase will harm the poorest in South Africa and undermine economic growth.

“We took this action after repeated efforts to caution the minister and appeal to his conscience failed. We wrote to the Minister, urging him to consider the impact of this increase on the poor and working-class people of South Africa, especially during a time when the cost-of-living crisis is deepening.

“We also reminded him that, just like the VAT increase, raising the fuel levy without introducing a proper Money Bill is unlawful and undermines parliamentary oversight,” the EFF said.

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