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 price correctly.

This is how it 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 divide the government taxes and levies in half, then it will only cost 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. If the revenue collection shrinks, most of government’s 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.
  • Associated costs are necessary for companies to operate.

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

There are only two viable alternatives available to 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.

  • Mosiuoa Rampai is a director for management accounting at the South African Social Security Agency (Sassa) and writes in his personal capa­city.