National Treasury and the Department of Mineral Resources and Energy have announced a two-phase plan that will provide South Africans with some relief at the pumps.
Phase one includes a temporary reduction in the general fuel levy, which is to be funded by liquidating of a portion of the strategic crude oil reserves.
“The Minister of Finance has proposed that the general fuel levy is temporarily reduced by R1.50 per litre from Wednesday 6 April 2022 to Tuesday 31 May 2022.
This will reduce the general fuel levy for petrol from R3.85 per litre to R2.35 per litre and reduce the general fuel levy for diesel from R3.70 per litre to R2.20 per litre for two months,” said the departments in a joint statement.
The government estimates the partial reduction in the fuel levy will cost around R6 billion in foregone tax revenue for the two-month period.
The revenue shortfall is expected to be recovered via the sale of strategic crude oil reserves held by the Strategic Fuel Fund (a subsidiary of the Central Energy Fund).
“The sale would be required to raise around R6 billion,” said the joint statement.
Phase two of the relief measures will be introduced after the expiry of the temporary measures from Wednesday 1 June 2022, these include:
- A reduction in the Basic Fuel Price of 3c/l, in line with the recommendations of the review done by the DMRE.
- The termination of the Demand Side Management Levy (DSML) of 10c/l on 95 unleaded petrol sold inland.
- The introduction of a price cap on 93 octane petrol, this will allow retailers to sell at a price below the regulated price.
- The termination of the practice to publish guidance by the DMRE on diesel prices to promote greater competition.
- The Regulatory Accounting System (including the retail margin, wholesale margin and secondary storage and distribution margins) will be reviewed to assess whether adjustments can be made to lower the margins over the medium term.
- Interventions will be considered by the DMRE to reduce the price pressure for illuminating paraffin over the medium term.
The combined effect of the two proposals will not have an impact on the fiscal framework adopted by Parliament following the 2022 Budget.
The escalation in oil prices is being felt globally since Russia’s invasion of Ukraine, which has placed significant pressure on domestic fuel prices and other commodities.