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The minister of finance has proposed that the general fuel levy be 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 to R2,35 per litre, and the general fuel levy for diesel from R3,70 to R2,20 per litre for two months. These amounts exclude other levies such as the Road Accident Fund (RAF) and the Carbon Fuel Levy.
According to a joint media statement by the Department of Mineral Resources and Energy (DMRE) and National Treasury, it is estimated that the partial reduction in the fuel levy will cost around R6 billion in foregone tax revenue for the two-month period. The minister of mineral resources and energy has proposed that the revenue foregone be recouped through a 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. The combined effect of the two proposals will not have an impact on the fiscal framework adopted by parliament following the 2022 budget.
Additional measures to be taken after the initial reduction
The minister of the DMRE has also proposed the following package of additional measures to be introduced after the expiry of the temporary measures from Wednesday 1 June 2022:
- A reduction in the basic fuel price of 3 cents per litre, in line with the recommendations of the review done by the DMRE.
- The termination of the Demand Side Management Levy (DSML) of 10 cents per litre on 95 unleaded petrol sold inland.
- The introduction of a price cap on 93 octane petrol, following from the previous DMRE proposal and consultation. 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 escalation in oil prices due to the global economic recovery as Covid restrictions are eased, and the current conflict between Russia and Ukraine has placed significant pressure on domestic fuel prices and other commodities.
Extensive consultations have been held between the National Treasury and the DMRE as announced in the 2022 budget to explore measures to provide short-term relief to consumers and reduce fuel prices over the medium term.
A “two-phase approach” was agreed on. This approach consists of immediate intervention for the next two months, and a package of measures to reduce prices when the temporary measures end after two months. This is in addition to announcements made in the 2022 budget where no changes were made to the general fuel levy and the RAF levy, providing tax relief of R3,5 billion.
Fuel levy reduction is welcomed
According to a press release by Agri SA, the reduction in the general fuel levy is a welcome intervention to contain food prices. On 14 March 2022, Agri SA called on government to suspend the fuel levy to relieve pressure on consumers, and these announced measures will help mitigate some of the upward pressure on food prices. Agri SA also notes the minister’s proposal for overdue long-term changes and will study the implications of these proposals for the sector.
Agri SA notes that the interventions announced only extend to May 2022. “It is essential that government be amenable to the expansion of these interventions depending on the conditions prevailing in the global fuel market at the end of the two-month period,” the statement reads. – Elmarie Helberg, AgriOrbit