Road to cheap petrol is filled with potholes

A synopsis of what constitutes the petrol price in South Africa must be noted in order to direct the discontent regarding the petrol price correctly.

This is how the petrol price is structured, using 95 unleaded petrol with a price of R16,02 as an example:

Fuel levy: R3,37 per litre

Road Accident Fund (RAF) levy: R1,93 per litre

Associated costs: R3,12 per litre

Basic fuel cost: R7,60 per litre

Total price: R16,02 per litre

It basically costs the companies R7,60 to buy a litre of petrol from the Organization of the Petroleum Exporting Countries (Opec).

When adding all the government taxes and levies, it amounts to R8,42 per litre. If government levies are scrapped, the price of petrol will be R7,60 per litre, which is affordable.

Alternatively, if the government decides to reduce the government taxes and levies in half, then it will only costs R11,81 per litre which is still reasonable.

  • Nevertheless, it is important to note the adverse impact: Fuel levy forms part of our normal tax base. Scrapping or reducing it will mean that our revenue collection will reduce thus adversely, affecting the distribution of revenue for government’s ability to fulfil its service delivery promises. If the revenue collection shrinks, most of government objectives will not be met.) Funds collected from the RAF levy are used to fund the RAF for it to function optimally as an institution and to compensate victims of road accidents. Scrapping it altogether means that the RAF will not be able to compensate road accident victims at all.
  • Reducing it will also results in the inefficiency in RAF operations due to scaling down staff and insufficient funds to run the organisation, translating to reduced payout to road accident victims. Associated costs are costs of transporting gasoline from the coastal region to the inland regions, and the insurances associated to it and other variables. This can be scrapped without any adverse impact to citizens. However, these costs are necessary for companies to operate.

Therefore, it is conclusive that the only reasonable and acceptable price of petrol is R7,60.

There are only two viable alternatives available for government:

The first is to suspend taxes or levies until December 2018 or until the situation “normalises”, whichever comes first.

The second is to half the costs of the fuel and RAF levy, associa­ted costs and subsidies so that companies do not lose much.

  • Be that as it may, both these avenues must be considered as a temporary intervention since they are both not sustainable for long without dire economic consequences and a subsequent adverse impact to service delivery as a ripple effect. Mosiuoa Rampai is a director: Management Accounting at the South African Social Security Agency (Sassa) and writes in his personal capa­city.