Treasury has come forward to justify the recent increase in the fuel levy, citing the need to maintain the real value of the tax amid rising inflation. The levy, which has been frozen for the past three years, is now being adjusted to align with current economic conditions and preserve a critical source of government revenue.
The adjustment comes after a prolonged freeze aimed at cushioning consumers from high oil prices. With fuel costs still impacting households and businesses, the latest increase has sparked criticism, particularly from political parties and civil society groups. The Economic Freedom Fighters (EFF), in particular, have announced plans to challenge the legality of the increase in court. They argue that Finance Minister Enoch Godongwana failed to follow proper legislative procedures, including issuing a formal notice or submitting a bill to Parliament.
Despite the pushback, the Treasury maintains that the fuel levy remains essential to the national fiscus. Chris Axelson, the Treasury’s head of tax policy, told Parliament during a budget hearing on Friday that specific taxes like the fuel levy and excise duties must be adjusted periodically to account for inflation. Failure to do so, he warned, would gradually erode their value and negatively impact public finances.
“This is a specific tax, a cents-per-litre tax, much like excise duties. These types of taxes need to be adjusted by inflation; otherwise, the real value of that tax will decline over time,” Axelson explained.
Treasury Defends Fuel Levy Increase as Necessary for Revenue Stability
He noted that without this adjustment, the Treasury stood to lose approximately R3.5 billion in revenue — a significant figure in a national budget already under strain. This potential loss would further complicate efforts to fund essential public services and infrastructure development.
Axelson also clarified the relative impact of the fuel levy compared to other revenue-raising measures in the budget. He said that the bulk of the R18 billion in additional revenue projected for the current fiscal year would come from increases in personal income tax, not from the fuel levy. Of that total, around R16.7 billion is expected to be derived from personal income tax contributions.
“The vast majority of the tax revenue increase is all on the personal income tax side,” Axelson said, emphasizing that the fuel levy plays a smaller, though still important, role.
From a legal perspective, the Treasury asserts that the finance minister acted within his powers under the Customs and Excise Act, which allows for interim fuel levy adjustments via a notice published in the Government Gazette. While this interim measure can be implemented without immediate parliamentary approval, Parliament retains the authority to modify the duration of the levy or require formalization through the taxation act at a later stage.
The Treasury has also pushed back against claims that raising the fuel levy is equivalent to increasing the value-added tax (VAT) rate. Officials argue that the fuel levy targets a specific product and is not a broad-based consumption tax like VAT, which affects a much wider range of goods and services.
The planned fuel price hike, which includes a 16 cents per litre increase, is scheduled to take effect on Wednesday. While it is expected to place additional strain on consumers, especially in the context of broader cost-of-living concerns, the Treasury believes the adjustment is necessary to sustain government revenue in the long term.
As legal challenges proceed and political debates unfold, the Treasury continues to defend its fiscal strategy, emphasizing the need for balanced and inflation-aligned tax policies. The department has reiterated its commitment to transparency and compliance with legal frameworks, stating that all adjustments are subject to oversight and potential revision by Parliament.
