The fuel levy increase vs VAT hike explained
While South Africans breathed a sigh of relief at the passing of the 2025 National Budget – and the relegation of the proposed VAT increase – one announcement of note was an increase in the fuel levy. While far less politically contentious than a VAT hike, debate has emerged over whether the fuel levy increase is, in fact, a 'stealth VAT'. It's a shift that raises valid questions about regressivity, affordability, and who will bear the brunt of the cost.
When the levee breaks
The National Treasury had aimed to raise R75-billion over three years by increasing VAT by 0.5% and then another 0.5% next year. But following political backlash and a likely legal pushback, the proposal was withdrawn. The fiscal gap, however, remained and needed plugging.
advertisement
Don't want to see this? Remove ads
In his revised May 2025 budget speech, Finance Minister Enoch Godongwana announced that the shortfall would instead be offset by expenditure controls and new revenue measures, including a 16c/litre increase on petrol and 15c/litre on diesel, effective 5 June 2025.
This marks the first fuel levy increase since 2021/22, bringing the total to R4.01 per litre – up from R3.85. Treasury projects that the change will raise R23-billion over three years, far less than the R75-billion expected from the shelved VAT plan, but still material given the constrained fiscal outlook.
Read more: 'We tread water for another year' — this fiscal offering is a stopgap, not a solution
Who suffers?
'Well, it is pretty much the same,' economist Dawie Roodt told Daily Maverick when comparing the VAT proposal to the fuel levy increase. 'The only difference is the quantum – the effect area will be less, simply because the rate of increase is less.'
VAT applies broadly to goods and services (excluding zero-rated essentials), while the fuel levy targets a narrower tax base, but its economic reach is wide – transport, logistics, manufacturing and food pricing are all exposed – which means that costing goes up across the value and supply chains – and even if it is the case that this increase is more distributed than a VAT hike, its impacts are still disproportional.
advertisement
Don't want to see this? Remove ads
According to the Pietermaritzburg Economic Justice & Dignity Group, which carries out monthly research on basic household costs, a minimum-wage worker commuting by taxi can spend more than a third of their monthly income on transport. Here, even a marginal fuel price increase imposes disproportionate burdens on low-income earners.
As The Outlier reported in its weekly newsletter issued on Friday, 23 March 2025: 'While the 16c increase is just another charge for some of us, it will likely impact poorer communities more. When the fuel price rises, it hits South Africa's working class the hardest.'
These costs also pass through to food prices and consumer goods. 'Fuel costs increase the price of most other goods and services as they push up transport costs across the board,' the publication said.
A revenue hole that still needs to be filled
Taking into account that the fuel levy will raise an estimated R4-billion in 2025/26, there is still quite a gap. 'Certainly not comparable,' Roodt notes. 'These two cannot be compared in terms of quantum, but in terms of the effect on the poor, that is pretty much the same.'
To close the gap, the Treasury is counting on SARS to ramp up compliance and enforcement – targeting an additional R20- to R50-billion in revenue annually. These gains remain aspirational, however, and are not yet factored into formal projections, both in terms of revenue or timeline, with much still depending on SARS Commissioner Edward Kieswetter.
advertisement
Don't want to see this? Remove ads
advertisement
Don't want to see this? Remove ads
An inflation signal? Perhaps not
For now, headline petrol prices are expected to drop in June, thanks to a decline in the basic fuel price. That may temporarily mask the effect of the levy increase, but longer-term pressures persist.
'Hardly any inflationary pressures will be expected from this,' Roodt argues, 'because petrol prices are coming down in any event.'
April CPI data shows inflation edged up from 2.7% in March to 2.8%, with key contributors being food, beverages, housing and services.
Read more: SA consumer inflation ticks up in April but remains below 3.0%
While the direct inflationary impact of the levy may be limited, the pass-through effects to goods and public transport fares are likely to show over a longer horizon.
Is there a better way?
It can be said that a fuel levy increase, much like a VAT increase, is regressive and disproportionately affects the most vulnerable. Roodt is unequivocal: 'South Africa's total tax regime is dramatically progressive already,' he says. 'There's nothing else that can be done to make it more progressive, basically.'
A detailed look at the May 2025 Budget shows that indirect taxes – including VAT, fuel levies and excise duties – account for more than 45% of gross tax revenue, compared with 39.9% from personal income tax. VAT alone contributes more than R480-billion, and domestic goods and services taxes collectively represent a third of all state income.
advertisement
Don't want to see this? Remove ads
advertisement
Don't want to see this? Remove ads
In other words, while the tax code may be progressive in theory, its impact is mixed in practice – and regressive taxes still carry weight in the government's pocket – but the fuel levy, unlike income tax, charges the same amount per litre regardless of the earner's bracket.
This doesn't negate additional strain on middle and low-income households, but rather illustrates the increasingly narrow options available to the Treasury in an almost zero-growth environment, saddled by debt.
A tax by another name?
Ultimately, the decision to withdraw the VAT hike and instead raise the fuel levy was as much political as it was fiscal. VAT increases require legislation and expose divisions in Parliament. The fuel levy, by contrast, can be adjusted via the Budget process – no legislative amendment required.
Whether this amounts to a 'stealth tax' or a strategic compromise depends largely on your own perspective, but as fuel-dependent households, which includes everyone within our borders in one form or another, absorb yet another marginal increase, it is clear that we are all still paying – just not through VAT. DM
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Daily Maverick
an hour ago
- Daily Maverick
Mixed news at the pump: fuel levy rises while prices drop
The Western Cape High Court has dismissed the EFF's urgent bid to block a controversial fuel levy hike—just as fuel prices dip. From midnight, levies rise by 16c (petrol) and 15c (diesel), despite constitutional questions. It's a pump paradox: taxpayers pay more, but pump prices briefly fall. In a ruling handed down yesterday, Judge Nathan Erasmus found that the EFF's application lacked urgency and did not meet the legal threshold for interim relief. The court did not engage with the broader constitutional challenge itself, which the EFF had previously framed in its initial filing as a possible Part B of its legal strategy. A tax fight rooted in Budget 3.0 The levy increase was announced in Finance Minister Enoch Godongwana's revised Budget 3.0, tabled in May following the political fallout and eventual withdrawal of VAT hikes in earlier budget versions. Treasury estimates the fuel levy will raise about R4-billion in the 2025/26 fiscal year. The EFF has argued that the use of Section 48(1) of the Customs and Excise Act to implement the fuel levy increase amounts to an unconstitutional bypassing of Parliament. Section 77 of the Constitution requires that all new taxes be passed via a money Bill through the National Assembly. Arguments on constitutional compliance Representing the EFF, Advocate Mfesane Ka-Siboto told the court: 'The fact that this has happened before does not make it lawful. Past practice is not a substitute for constitutional compliance.' He described the move as a case of 'taxation without representation.' The Treasury, represented by Advocate Kameel Premhid, countered that Section 48(1) had long been used lawfully to adjust fuel levy schedules. He argued the measure was an administrative amendment within an existing framework, not the introduction of a new tax requiring legislative approval. What this means for you For consumers, the fuel levy increase translates into higher petrol and diesel prices at the pump, effective immediately. This could lead to broader knock-on effects on transport costs, food prices and inflation, particularly for lower-income households who spend a greater share of their income on fuel-linked expenses. Treasury maintains the hike is necessary to address fiscal gaps left by the abandoned VAT proposal. The fuel levy increase will be offset by a decrease in fuel prices – which also kicks in on Wednesday, 4 June. The Department of Minerals and Petroleum Resources (DMPR) announced the following price decreases yesterday: Petrol 93 (ULP & LRP): ⬇️5cents/litre. Petrol 95 (ULP & LRP): ⬇️5 cents/litre. Diesel (0.05% sulphur): ⬇️ 36.9 cents/litre. Diesel (0.005% sulphur): ⬇️36.9 cents/litre. Commenting on the changes, the DMPR noted that over the last month, there has been a decrease in the average Brent Crude oil price from US$66.40 to US$63.95, largely on the back of continued global trade uncertainty, Parliament distances itself from the damage Parliament, which was cited in the court papers, but not the target of any relief, issued a brief statement after the judgment: 'Although cited in the application, no relief was sought against Parliament. Parliament's position throughout the proceedings was to abide by the outcome of the court process. Accordingly, Parliament will comply with the court's ruling.' Oversight loophole or legal mechanism? In its legal representations, Treasury has argued that Section 48(6) of the Act ensures Parliamentary oversight by requiring the amended tariff to be tabled after the fact. The EFF, however, contends this form of post-implementation tabling falls short of the constitutional threshold for public finance legislation. EFF's Part B remains unclear In a short statement on X after the ruling, the EFF said: 'We are committed to fighting the fuel levy increase in court and in Parliament.' However, the party did not explicitly confirm that it would pursue the Part B constitutional review. Whether the EFF returns to court or not, the broader legal and political debate over fiscal authority, oversight and the democratic control of taxation is likely to persist. DM
eNCA
4 hours ago
- eNCA
Discussing BBBEE redress policies effect on the economy
JOHANNESBURG - The critique of South Africa's so-called "racial policies" by the United States has again put BBEE in the spotlight. READ: Ramaphosa defends BEE policies in Parliament Broad-based economic empowerment measures were put in place to counter apartheid policies that disadvantaged different groups of South Africans through poorer education, a lack of promotion and confiscation of their assets and rights. Many have argued it's not working. An academic says that the complex problems affecting the country's economic growth cannot be reduced to policies aimed at redress. Dr Khwezi Mabasa, the Economic and Social Policy Lead at Friedrich-Ebert-Stiftung South Africa, discussed this with eNCA.
Daily Maverick
4 hours ago
- Daily Maverick
Gaps in the safety net — breaking down state and societal protections for children
South Africa's child protection system is supposed to be a safety net for young people in danger. But when you listen to the people working in the sector, you hear the same story again and again – the net is full of holes and too many children are falling through. Child protection in South Africa is a whole-of-society responsibility, involving the family and community, the departments of social development and justice, the South African Police Service and a range of civil society organisations. These structures are meant to provide a safety net for the country's children and ensure accountability and support when young people are exposed to physical, sexual or emotional attacks. And yet, too many children are still falling through the gaps. The experiences of some victims are never disclosed. Other cases are reported only to be lost over years-long efforts to attain justice and assistance. Daily Maverick spoke to child advocacy experts about South Africa's safety net for children, from its successes and failures to the need for reinforcement. Catch up Childhood in crisis This is a special Daily Maverick editorial project exposing the brutal realities of child abuse, neglect, and systemic failure – and what needs to change. Over the coming days, we'll publish a series of in-depth articles. Keep checking this page for the latest stories in the series. How does SA compare with other countries in child protection efforts? Globally, one in every two children between the ages of two to 17 experience some form of violence every year, according to Sinah Moruane, child protection specialist at Unicef South Africa. One in three children experience a form of emotional abuse. 'As South Africa… our child homicide rate is very high. We are standing at 5.5 [homicides per 100,000 children], according to the research done by the University of Cape Town Children's Institute, as compared to the global homicide levels, which are 2.5 for every 100,000 children,' said Moruane. The country does have legal frameworks and policies related to protecting children, namely the Children's Act, the Criminal Procedure Act and the Sexual Offences and Related Matters Act. Moruane noted that South Africa was also part of a global movement to address violence against children. But despite a robust legal framework, implementation remains flawed. How do social workers ensure the protection of children? South Africa's child protection system relies heavily on social workers, according to Professor Shanaaz Matthews, former director of the UCT Children's Institute. While social workers act through the Department of Social Development and at the level of community-based organisations, there simply aren't enough to manage the scale of violence against children in South Africa, said Moruane. Berenice Barry, social work manager at the Cape Town Child Welfare Society, said that social workers received training internally and from external service providers. Resources remained a challenge in every NGO, but she said social workers were solution-focused and performed their duties with the resources available to them. Moruane noted that for Child Protection Month 2025, the Department of Social Development committed to examining its case management process so that children whose abuses were reported received the best support. 'We know for a fact that there is the register that the department has institutionalised. The Child Protection Register assists in recording survivors, but also records people who perpetrate [against] children,' she said, adding that the register ensured provinces could track and support survivors. However, Moruane said that more needed to be done to ensure that children received the necessary support to heal from the scars of being 'violated'. Daily Maverick approached the Department of Social Development, but had not received a response at the time of publishing. How does the SAPS make or break cases? Many challenges around the SAPS' approach to crimes against children have been highlighted by child advocacy organisations and media over the years, including the resource constraints at police stations, the specialised training of officers and the backlogs of DNA evidence for matters under investigation. In March, parliamentary committee on police chairperson Ian Cameron stated that the DNA backlog facing the SAPS Forensic Science Laboratory division exceeded 140,000 cases. Luke Lamprecht, head of advocacy for the Gauteng-based nonprofit Women and Men Against Child Abuse, told Daily Maverick that issues bedevilling DNA forensic services in South Africa included the limited availability of sexual assault evidence collection kits, breaks in the chain of custody for samples and years-long waits for results. 'Without a suspect to test [samples] against, they simply don't test the DNA, so [samples] lie around, rooms and rooms full of these kits, that are never analysed,' he said. Daily Maverick has asked the SAPS about DNA testing services and investigations of crimes against children. A response will be added once it becomes available. Moraune expressed appreciation for the efforts of the SAPS, but believed improvement was needed in officers' engagements with child victims, especially when it came to taking statements. 'Some… chase the children away, [or tell them to] come with an adult, so that then they can take their case. What if the very same adult is… [the] perpetrator of violence? Then it becomes very difficult for a child to feel free to report.' Online abuses against children, such as exposure to child sexual abuse material or grooming by perpetrators, are sometimes a low priority for the SAPS, said Moraune. 'When a child has to report this, there is no urgency… because it's not viewed with the same intensity and seriousness,' she said. 'We are appealing to the police… to take the cases that children put across, and show that proper investigation is needed.' Rumbidzai Chidoori, regional policy and advocacy coordinator at Sonke Gender Justice, said inadequate state budget allocations for police resources and shelters, particularly those that could accommodate women with children, showed a lack of appreciation for the scale of the problem. When children were removed from abusive homes, Chidoori said not enough was done to follow up, leading to secondary violations. What do children experience in SA's courts? When Daily Maverick asked the National Prosecuting Authority (NPA) about its success rates in cases of crimes against children, it responded that it did not 'keep records of the victims at this stage – not even on the Child Justice [side], unfortunately'. Lamprecht estimated that in cases of sexual violence against children, the conviction rate was between 4% and 7%. The Teddy Bear Foundation, an NGO providing services for victims of child abuse, released statistics in March 2025 showing that, of 5,385 cases handled by its court preparation programme between 2019 and 2024, just 4% had resulted in a conviction, according to a TimesLIVE report. When children's cases make it to court, they should receive support services throughout – and beyond the justice processes, said Moruane. She noted that, according to the Criminal Procedure Act, child victims should not be brought into contact with perpetrators. 'We can attest to the fact that the country has put in measures that are really responsive to the needs of children, to ensure that survivors of violence are not engaging in forms of secondary victimisation by going through the court processes,' she said. Lamprecht noted that while processes in the high court tended to be well-resourced and efficient, the situation in the lower courts was often more disorganised, with many postponements. One case he's involved with has been in process for seven years. How effective are referral pathways between stakeholders? While institutions involved in child protection were aware of their mandates, there were times that children 'fell through the cracks' due to failures in the referral pathways between stakeholders, said Moruane. 'The referral mechanisms are the ones that are failing the child… We need to look at how best to connect the dots between the different child protection actors in the ecosystem to ensure that at least the child will move from a social worker to the police, or [vice versa],' she said. Shifting to digitised referral pathways would go a long way to streamlining the process of moving cases of child violence through the system, said Moruane. It would allow case information to be shared seamlessly between different professionals, reducing the need for children to repeatedly recount traumatic events. There have been reports of poor coordination between various departments, leading to lost evidence in child abuse cases. However, Barry said social workers didn't experience any challenges in working with law enforcement, the courts or hospitals in child abuse cases. How is family the first line of defence? Family remains a child's first line of defence against harm. Moruane said there were still many cases of violence against children that went unreported by caregivers. 'Research tells us that three in every four children experience violence at the hands of caregivers or parents. It shows us that we have normalised… the administering of corporal punishment to children and as such, addressing violence becomes very challenging,' she said. 'It is important that parents, caregivers, other family members have a listening ear for children and… report such cases, so that children can receive help… at a very convenient and early age.' How do we shift to a system of prevention? Prevention measures are vital when it comes to violence against children, according to Chidoori. South Africa's system, however, is largely focused on responding to harm. Chidoori advocated for directing more resources towards preventive measures, including stronger social protection systems, positive parenting (especially involving fathers), addressing harmful social norms, tackling substance abuse and providing mental health support. 'If we strengthen prevention, fewer children will go through the criminal justice system, and fewer children will actually require therapeutic, intensive interventions. We should turn the pyramid around and strengthen prevention,' said Moruane. Identifying cases of child abuse is the responsibility of everyone in society, said Matthews. 'Until we all accept that we have a part to play in how to prevent and reduce abuse of children, then we're not going to stop this problem because stopping this problem starts with each one of us internally,' she said. 'This speaks to how we raise our own children, how we use corporal punishment … and [how] people at times turn a blind eye when they see it happening to neighbours or within our families.' DM
