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Fuel levy is the best solution. Here's why...

03 June 2015   (0 Comments)
Posted by: Author: Wayne Duvenage
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Author: Wayne Duvenage (Daily Maverick)

There’s no question the fuel levy is a worthy alternative to the hated e-toll system imposed on Gauteng motorists. There is a 100% compliance level, it costs little to administer, is already government policy and will bring R55 billion into the country’s coffers this year. So why can’t the government just use it to fund road-building, as it was originally designed to do?

It is important to note that the fuel levy funds are not necessarily ring-fenced for roads and transport. The money goes into Treasury’s general tax pot, to be used and divvied up the best way to most effectively manage the country’s affairs.

The fuel levy is a direct user-pay tax on the motoring public. It is also one that was initially introduced by the Apartheid government in the ’70s in order to raise taxes directly from motorists, which were allocated to a road-building fund. Later, the ring-fenced requirement was dropped, allowing the fuel levy to be used to alleviate other socio-economic pressures applied to Treasury’s allocation needs.

The fuel levy of today has become an ever increasing and lucrative tax for the authorities to tap into. It has been generally motivated as a ‘tax on the rich’, because vehicle owners are regarded as being on the wealthier side of the fence. The table below shows how much the fuel levy has attributed to the national coffers over the past 12 years.

wayne fuel levy

Interesting to note from this table, is how the income to the South African Revenue Service from the fuel levy will have increased by some 250% over 12 years, from 2004 to 2016, while over the same period, the volume of fuel pumped has only increased by roughly 36%, representing an average of 11% year on year increase in the fuel levy rates applied to motorists, since 2003/4 (excluding the Road Accident Fund, which is funded by the RAF levy, a separate fuel tax from the fuel levy).

The arguments for the use of the fuel levy as a funding mechanism are:

  • The fuel levy attracts zero administration costs, compared to costs in excess of R1 billion every year to administer the collection of e-tolling revenues.
  • There is 100% compliance level with the fuel levy. Aside from the few battery-powered vehicles on our roads, petrol or diesel is used to power all road transport in South Africa. At best, e-tolling could only generate around 45% compliance by mid 2014.
  • The use of the fuel levy is currently in existence as government policy to fund road infrastructure. The e-toll regulations and policies on the other hand, have been rewritten and gazetted on several occasions since 2009, and are still not complete or effective in achieving the aims intended.
  • The Gauteng Freeway Improvement Plan (GFIP) bonds require approximately R1.9 billion per annum to finance over 24 years, including interest. This is equivalent to approximately 10c per litre in the fuel price.
  • The Gauteng Freeway Improvement Plan (GFIP) bonds require approximately R1.9 billion per annum to finance over 24 years, including interest. This is equivalent to approximately 10c per litre in the fuel price.
  • In the tax year ending 2008, the fuel levy generated R24.8 billion. This tax year, the fuel levy is estimated to swell government’s coffers by over R55 billion. The increase of the fuel levy, since the building of the GFIP began, can effectively finance two extra GFIP projects every year, in cash.

Vehicle owners – government’s cash cow

While there is a correlation between car ownership and wealth in South Africa, the level of taxation applied to vehicle ownership is extremely high. There comes a time when the ability to continue with excessive taxation on motorists reaches a point of saturated tolerance, the point at which the cost of vehicle ownership becomes out of sync with the perceived benefits derived, and and with a lack of public transport alternatives, resistance from motorists begins to develop.

The backlash against the e-toll decision is an indicator of frustration expressed by motorists in South Africa, suggesting that tolerance for government’s abuse of the motoring public has now peaked.

Vehicle ownership is South Africa is also subject to other taxes:

1. Import/excise duties; 

2. Vehicle (carbon) Emissions tax – roughly an additional 2.5% on the car value;

3. Tyre taxes – R2.30 per kilogram on replacement tyres; 

4. Fuel levies–(over one-third of the retail price of fuel) per litre of 95 ULP in Gauteng is made up of:

a. R0.33 – Gauteng Zonal Differential;

b. R2.54 – from April 2015;

c. R0.04 – Customs;

d. R1.54 – Road Accident Fund (RAF);

e. R0.10 – Inland Demand Levy;

f. R0.01 – Inland Pipeline Levy

 

5. Vehicle license fees – average of R650 per car in Gauteng per annum; and now…

6. Tolled roads.

When one weighs up all the options available to government, we fail to understand why the authorities are not making use of the most efficient tax collection mechanisms on the table. Why can government not accept that, no matter how hard they try to disguise the e-toll scheme, gloss over the nature of its inefficiencies, deny the high costs of administration, and refute its overall irrationality, the public does not want its urban roads funded this way, even at half the price.

Given the choice on every occasion that the government has sought input from the public, in over 95% of the submissions made, society has chosen to go with the fuel levy over e-tolls. We fail therefore to understand how Deputy President Cyril Ramaphosa and and Premier David Makhura’s advisory panel can claim that they have heard the people on the e-toll matter.

This article first appeared on dailymaverick.co.za.


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