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The Citizen
3 days ago
- Business
- The Citizen
‘We have a National Treasury problem': Fuel levy hike defended amid criticism over tax strategy
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.
IOL News
21-05-2025
- Business
- IOL News
South Africa's budget 3. 0: A year of fiscal upheaval and strategic changes
As the months slip into May, the fiscal landscape continues to evolve, presenting both challenges and opportunities for the economy. Image: Ziphozonke Lushaba / Independent Newspapers In a financial milieu punctuated by unexpected shifts, South Africa's Finance Minister, Enoch Godongwana, unveiled his third National Budget for the fiscal year, titled Budget 3.0. The intricate journey to this point has been nothing short of extraordinary, marked by the postponement of the first budget and the withdrawal of the second due to legal wrangles. As the months slip into May, the fiscal landscape continues to evolve, presenting both challenges and opportunities for the economy. Joubert Botha, Head of the Tax and Legal practice at KPMG in Southern Africa, offered insights into the key elements of this revised budget, focusing on the implications for taxpayers and the broader economic framework. 'This year's budget has been marked by a comprehensive reevaluation of tax revenue projections," Botha said, reflecting on the substantial R61.9 billion downward revision of anticipated revenues. This significant adjustment signals the government's cautious approach amid ongoing economic uncertainty. One of the most discussed aspects of Budget 3.0 was the decision to forego an increase in Value Added Tax (VAT) that had stirred controversy in public discourse. Botha said that there would be no expansion of the zero-rated basket nor any hike in VAT rates. Instead, the budget placed emphasis on an inflationary increase in the fuel levy, a move set to stimulate various facets of fiscal support. Moreover, amid the fiscal recalibrations, the government has allocated R7.5 billion in funding to the South African Revenue Authority (SARS). This infusion of resources aims to enhance tax collection efforts, with projections of raising an additional R20 to R50 billion. The strategic focus on modernisation of SARS is set to bolster efficiency, ensuring the institution can adeptly tackle its collections mandate in an ever-evolving economic landscape. Notably, Budget 3.0 does not accommodate inflationary adjustments to personal income tax brackets or medical tax credits, a feature that many taxpayers will keenly feel, particularly as inflation continues to challenge household budgets. In contrast, adjustments to excise duties on alcohol and tobacco have been made, symbolising the government's stance on ensuring that certain sectors contribute fairly within the tax framework. As the budgetary processes unfolds, there is an anticipation of new tax measures to be proposed in the upcoming disbursements. Botha elucidated that further adjustments in the budget could herald innovative approaches to stimulate growth and address national priorities more effectively. "In summary, South Africa's Budget 3.0 encapsulates the narrative of a nation grappling with economic challenges while attempting to chart a strategic path forward. The absence of immediate VAT increases, alongside targeted funding for SARS and moderated adjustments in other tax areas, creates a complex but compelling fiscal tapestry as the country endeavours to stabilise and grow its economy amid numerous headwinds," Botha said. BUSINESS REPORT Visit:
The Citizen
21-05-2025
- Business
- The Citizen
Budget 3.0: First fuel levy increase in three years – Here's by how much
The general fuel levy will increase by 16 cents per litre for petrol, and by 15 cents per litre for diesel. Finance Minister Enoch Godongwana's third attempt at delivering the budget speech brought an unwelcome surprise for motorists. He announced the fuel levy will increase for the first time in three years. Godongwana, while delivering the budget on Wednesday in Cape Town, stated that the levy increase is the only new tax proposal he is announcing in the latest version of his budget. 'It remains vital that we still take actions to increase revenue to protect and bolster frontline services, while expanding infrastructure investments to drive economic activity. 'To this end, this budget proposes an inflation-linked increase to the general fuel levy.' ALSO READ: Budget 3.0: Alcohol and cigarette prices will increase — here's by how much How much will the fuel levy increase by? Godongwana said the general fuel levy will increase by 16 cents per litre for petrol and 15 cents per litre for diesel. This will take effect from 4 June 2025. He, however, did note that this alone will not close the fiscal gap over the medium term. In the second budget speech delivered on 12 March 2025, Godongwana did not increase the fuel levy, stating that the decision was made to help South Africans cope with the high cost of living. However, he has made a U-turn after scrapping the value-added tax (VAT) increase. ALSO READ: Cutting fuel levies: government all talk, no action – Outa What is the fuel levy? The fuel levy is a tax charged on every litre of fuel sold, with a portion going to the government and another to the Road Accident Fund (RAF levy) to compensate victims of motor vehicle accidents. The levy amounts to 18% of the retail price, while the RAF levy is about 10%. This has remained unchanged since 2022 to mitigate the effects of higher inflation resulting from increased fuel prices. Why the increase? The increase is intended to aid in revenue collection. He said the aim of the previous budget made on 12 March was to balance the necessity of growing the economy with the equally urgent need to repair and rebuild our public finances. Tax revenue projections have been revised down by R61.9 billion over the three years. 'This reflects the reversal of the VAT increase and the much weaker economic outlook.' NOW READ: Godongwana cuts government spending to offset VAT shortfall
IOL News
21-05-2025
- Business
- IOL News
2025 Budget Speech 3. 0 brings fuel tax increase: here's how it will affect June fuel prices
June will see fuel taxes increasing by 15 to 16 cents. Image: Armand Hough / Independent Media Following much political strife, Finance Minister Enoch Godongwana presented Treasury's revised 2025 Budget on Wednesday, as the third official attempt to balance South Africa's finances since February's contested speech. While the previously announced 1% Value Added Tax (VAT) hike falls away, following considerable pressure from within the Government of National Unity (GNU) as well as from opposition parties, Treasury now has an additional R61.9 billion shortfall to fund over the next three years. Although a number of tax increases had been expected, the Minister announced in his third Budget Speech that the only new tax proposal would be an inflation-based increase in the General Fuel Levy (GFL) for the 2025/26 fiscal year. This will see the GFL on petrol increase by 16 cents to R4.01, while the diesel tax will rise by 15 cents to R3.85. This raises the total tax on petrol to R6.37, factoring in the R2.18 Road Accident Fund levy, which remains unchanged, as well as the 14 cent carbon tax penalty and four cent customs and excise duties. However, a stronger rand could shield South Africans from the fuel tax increase in June, with the latest data from the Central Energy Fund showing an over-recovery of 22 cents for both grades of petrol and 49 cents for diesel. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ As over-recoveries point to fuel price decreases for the following month, this could mean the fuel price levy increase is effectively cancelled out, while diesel should still see a modest price decrease. That said, recent upward movements in international fuel prices could still sway the equation towards a small petrol price increase next month if current trends persist. The bottom line is that petrol price movements will almost certainly be moderate in June, not straying far from the current prices of R21.40 for 95 Unleaded at the coast and R20.60 inland, where 93 ULP retails for R21.29. Inland petrol is currently just 17 cents more expensive than it was in January this year, and this stability has contributed positively to the country's lower inflation outlook for the year. Fuel prices have remained a major disinflationary force, says Casey Sprake, economist at Anchor Capital. 'The sustained softness in global oil prices (despite rand volatility) has played a key role in tempering domestic inflation,' Sprake said. 'This not only eases direct costs for consumers at the pump but also reduces input and transport costs for businesses, indirectly alleviating pressure on broader price levels.' Get your news on the go, click here to join the IOL News WhatsApp channel IOL
IOL News
21-05-2025
- Business
- IOL News
Eina! Motorists to feel the pinch as Finance Minister notes increase in fuel levy
Finance Minister Enoch Godongwana Image: GCIS/Phando Jikelo South Africa's National Budget, which was finally tabled on Wednesday after three previous attempts, is not one in which government seeks to reduce expenditure, Finance Minister Enoch Godongwana said. However, in seeking to increase revenue for the state's coffers, the budget proposes an inflation-linked increase to the general fuel levy, said Godongwana. He added that this was 'the only new tax proposal that I am announcing' and would be the first fuel levy increase in three years. Both Old Mutual chief economist Johann Els and Investec chief economist Annabel Bishop expected such an increase, although Bishop had also expected that the duties on tobacco and alcohol would increase. However, said the Minister, this will not be enough to close the revenue gap. Subsequent budgets will have to find additional revenue sources, said Godongwana. Before tabling the Budget, Godongwana said that the votes on it needed to happen before the end of July as Departments were running out of money. The Budget was, for the first time in nine years, not physically attended by President Cyril Ramaphosa who joined live from US, where it was 5am in Washington. 'This is not an austerity budget,' said Godongwana. He noted that, instead of cutting back severely on expenditure, it increases non-interest expenditure by an average of 5.4% over three years. In real terms, this is 0.8% growth, the Minister said. South Africa's two previous Budget attempts failed to gain approval because of proposed VAT hikes, and markets had been concerned over DA threats to leave the multi-party government. Since then, Cabinet has approved the proposed framework. Economists had called for expenses to be cut as the removal of the March proposal of 0.5 percentage point VAT hike meant that government would have a R75 billion deficit in revenue. As a result of the removal of the proposed VAT increase, 'the expansion of the zero-rated basket, which was included to cushion poorer households from the VAT rate increase, falls away,' said Godongwana. In addition, money flowing in from tax has now been revised down by R61.9 billion over the next three years of the Medium-Term Framework. The National Treasury has proposed allocating an additional R7.5bn over the next three years to increase the effectiveness of the South African Revenue Service in collecting more revenue. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ On Wednesday, Godongwana said the National Budget was a redistributive budget.' It directs 61 cents of every rand of consolidated, non-interest expenditure towards the social wage. This is money that will be spent to fund free basic services like electricity, water, education, healthcare, affordable housing, as well as social grants for those in need,' he said. This budget invests over R1 trillion in critical infrastructure to lift economic growth prospects and improve access to basic services, Godongwana said. He added that this is done without compromising the fiscal strategy of sustainable public finances. However, government has achieved its balancing act by reducing additional spending over the medium term by R68bn. 'Simply put, this means baseline allocations across all spheres of government remain largely unchanged. Instead, the size of the proposed increases to allocations is reduced, in line with what we can afford,' said Godongwana. Economists had been concerned about frontline investment being cut, such as additional teachers and nurses. Godongwana added that the government would continue to pay large amounts to service debt, which would amount to more than R1.3 trillion over the next three years. 'Put differently, this means in 2025/26 alone we are spending around R1.2 billion per day to service our debt,' he said. IOL
