‘We have a National Treasury problem': Fuel levy hike defended amid criticism over tax strategy

The Citizen

2 days ago

At least R3.5 billion in revenue would be lost by not increasing the fuel levy, according to National Treasury.
Petrol pumps are pictured at a filling station in Melville on 20 January 2021. Picture: Tracy Lee Stark
The National Treasury has defended its decision to increase the general fuel levy in the budget 3.0 amid criticism over its broader tax policy.
On Friday, officials from the Treasury and the South African Revenue Service (Sars) appeared before Parliament in a joint meeting of the Standing Committee on Finance and the Select Committee on Finance.
They were responding to public submissions on the fiscal framework and revenue proposals, which outline South Africa's economic policies, revenue projections, and government expenditure limits.
This follows the tabling of Finance Minister Enoch Godongwana's third national budget for the 2025/2026 financial year, after months of political impasse.
The budget includes a fuel levy increase of 16 cents per litre for petrol and 15 cents for diesel, effective from 4 June.
However, the Economic Freedom Fighters (EFF) are challenging the hike in court.
National Treasury's revenue projections
Treasury's head of tax and financial sector policy, Christopher Axelson, addressed the committee on the revised revenue outlook.
Axelson noted that revenue projections had decreased by R61.9 billion compared to the budget tabled in March.
This decline was driven in part by the withdrawal of proposed increases to value-added tax (VAT) and adjustments to zero-rated items.
'That increase was reduced slightly, but it still required a large amount of additional revenue to make sure we have a fiscally sustainable trajectory for our debt and debt-service costs, and because of that, this May 2025 budget does include R18 billion in additional revenue for 2025/2026 and has R1 billion in tax relief in 2026/2027,' the Treasury official said.
He also indicated that a further R20 billion in unspecified tax policy adjustments is anticipated for the 2026 budget.
To fund expenditure priorities, Treasury has opted for a range of tax measures, including no changes to personal income tax brackets or rebates, an inflationary increase in the fuel levy, and above-inflation hikes in excise duties on alcohol and tobacco.
Diesel refund relief for primary sectors was also announced.
ALSO READ: Budget 3.0: Fuel levy replaced VAT hike but is it the better option?
Axelson pointed out that past personal income tax increases had failed to raise the intended revenue, while corporate income tax remains 'highly volatile'.
'Corporate income tax increases are the most damaging to growth, and if you reduce growth, it reduces the tax bases as well, so it is not as effective.'
Axelson pointed out that a VAT increase was the most efficient revenue-raising option but had to be scrapped due to opposition.
As a result, a bulk of the revenue shortfall was addressed by not adjusting personal income tax and rebates for inflation.
He also explained that Treasury has aimed to avoid increasing taxes over the last five years in an effort to support economic recovery, adding that the country's tax system was 'progressive'.
National Treasury defends fuel levy hike
Moreover, Axelson responded to comparisons between the fuel levy hike and a VAT increase.
'The quantum is very different. The VAT increase over three years would have raised about R75 billion. Increasing the fuel levy by inflation is closer to around R12 billion.'
He defended the levy hike, arguing that it had not been raised in the previous three budgets.
'Part of that was due to the very high oil, petrol and diesel prices [but] those have been coming down lately. The recent non-adjustment in the March budget was to provide relief for VAT.'
READ MORE: VAT reversal overshadowed by fuel levy hike
Axelson emphasised that the fuel levy is a significant source of state revenue, contributing about 5% to total tax revenue.
'This is a specific tax, a cents per litre, so these kinds of specific taxes, which are the same as excise duties, they need to be adjusted by inflation; otherwise, the real value of that tax will go down over time.'
He warned that Treasury would lose about R3.5 billion in revenue by failing to increase the fuel levy.
'The vast majority of the tax revenue increase is all on the personal income tax side. Around R16.7 billion of the R18 billion in increases is all on personal income tax.'
Watch the meeting below:
Axelson told the committee that various alternative revenue proposals – such as eliminating the employment tax incentive (ETI), increasing corporate income tax, introducing a wealth tax, and partially adjusting tax brackets – will be considered in the 2026 budget.
'A lot of them are very good and interesting proposals which we are going to have to consider very carefully and hopefully have a more consultative process before the next budget.'
He added that although the finance minister has the authority under the Customs and Excise Act to implement an interim fuel levy adjustment via a notice in the government gazette, Parliament has the right to intervene.
'We do hope the notice will be published quite soon [but] Parliament may decide to intervene [as] there is legislative oversight.'
Tax policy criticised
Civil society and political parties reacted strongly to the Treasury's presentation.
The Budget Justice Coalition, one of the organisations that made submissions, rejected claims of a progressive tax system.
'Our tax system can look progressive on paper, but it doesn't actually work that way, and we know that all too well in a country that is marked by some of the highest levels of inequality,' the organisation's chairperson, Matshidiso Lencoasa, said.
She argued that South Africa's tax policy burdens the poor, while wealthy individuals and corporations continue to exploit loopholes to their advantage.
READ MORE: Fuel levy pain: Brace for possibility of petrol price hike in June
Lencoasa further criticised the proposed VAT and fuel levy increases, describing them as 'blunt instruments' that would place a heavier financial strain on the country's most vulnerable populations.
Pieter Faber, senior executive of taxation at the South African Institute of Chartered Accountants (Saica), also expressed concern.
Faber said the institution cannot support further tax increases in an already high-tax environment, especially amid rising national debt and ongoing concerns about the lack of government accountability, as highlighted in the Auditor-General's report on local government this week.
Fuel levy increase under scrutiny
MK Party MP Des Van Rooyen criticised the delayed implementation of alternative proposals.
'My expectation was that most of the inputs would be accommodated in this budgeting cycle,' Van Rooyen said.
He asserted that the fuel levy increase was more regressive than the scrapped VAT hike.
'There should be a thunderous response against this proposal.'
Democratic Alliance (DA) MP Pieter Britz called for a fairer distribution of the tax burden.
READ MORE: EFF files urgent interdict to stop proposed fuel levy hike
EFF MP Omphile Maotwe strongly disagreed with Treasury's position on the fuel levy.
'National Treasury refuses to increase corporate income tax for ideological reasons and not practical ones. They oppose a wealth tax because their underlying assumption is that the state must serve those who already have wealth.'
She also challenged the narrative of a progressive tax system.
'The claim that our tax system is progressive cannot be taken seriously,' Maotwe said, accusing the department of ignoring alternative proposals.
'It is clear that we have a National Treasury problem,' she added.