Supplementary Budget 2020

Motorists hit hard by double digit tax increases

Cape Town - Motorists will have to fork out more when filling up their petrol tanks owing to increases in both the fuel and Road Accident Fund (RAF) levies, which were announced by Finance Minister Malusi Gigaba in his 2018 Budget Speech on Wednesday.

The general fuel levy will rise by 22 cents per litre while the RAF levy increases by 30 cents per litre with effect from April 4 2018, resulting in a combined 52 cents in additional money that consumers will need to pay for each litre of fuel.

Motorists are also likely to be impacted by a higher value-added tax (VAT) rate, which Gigaba raised to 15% from 14%, on new vehicle purchases as well as tyres, parts and other vehicle accessories. Aspirant owners of luxury cars will also be hit by a higher ad valorem tax on such vehicles.

“The increased RAF and fuel levies, along with the rise in VAT, will certainly have some inflationary impact,” said Craig Polkinghorne, Head of Business and Commercial Banking at Standard Bank.

“However, if the budget is judged by the market to be business and investor friendly then the rand is likely to react positively, which in turn will ease inflationary pressures by reducing the cost of imported fuel and other goods.”

Gigaba’s 2018 Budget Speech came shortly after a report by Statistics South Africa showed that inflation eased to 4.4% in January, down from 4.7% in December. That was the tenth consecutive month that inflation has remained within the Reserve Bank’s target band of 3% to 6%.

The rand was trading at R11.6447 per dollar at 15:17, compared to R11.7193 just prior to Gigaba’s 2018 Budget speech.

The Automobile Association expressed "great concern" at the fuel and RAF levies, saying the  increases amount to a total increase of 11% on the current levies from R4.78 to R5.30 and will come into effect on 1 April, along with other increases, such as the increase of VAT from 14% to 15%.

The general fuel levy represents increase of 7%, and the RAF levy an 18% increase on the current levies respectively.
 
In January the AA urged government to be careful in determining future hikes to the levies due to the impact the increases will especially on the poor. At the time the AA also argued that any increases should be in line with inflation.

Instead the increases announced in Budget 2018 are "sizable" and more than double current inflation, according to the AA.
 
"Based on current fuel prices inland and coastal, these increases will now comprise 38% and 39% respectively of a litre of 93 unleaded petrol. Currently a litre of unleaded 93 octane fuel inland costs R13.90," said the AA.

"This will increase to R14.42. A litre of unleaded 93 octane at the coast costs R13.49 which will increase to R14.01. These increases are based on February fuel prices which may increase or decrease before the implementation of the levy price increases in April."
 
In the view of the AA the 52 cents a litre hike in the fuel levies more than wipes out the 30 cents gain realised in the fuel price in January, and the AA’s predicted decrease of 28 cents going into March.

These decreases were gained mainly through the strengthening of the rand as a result of the change in leadership of the ANC.
 
“Coupled with the increase in VAT, the increase to the fuel levies means South Africans, especially the poor, will, in our opinion, be faced with substantial hikes in their day-to-day living expenses. Many of these people will simply not be able to absorb them,” said the AA.

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