In South Africa road transport is one of the most serious causes of air pollution, fossil fuel consumption and associated environmental degradation. South Africa is heavily dependent on road transport. Mass transport SOE’s like Transnet are not keeping up with our rapid rate of urbanization, economic development and population growth which all contribute to making traffic-related problems even more severe.
In a typical knee-jerk response to a problem South Africa slapped a tax on Fuel back in June 1978 when it was introduced as a General Sales Tax (GST) at 4% or 1 cent per litre (c/l). After a number of changes, GST was replaced in 1987 by a fuel levy of 30.9 c/l. A fuel tax is currently levied on the consumption of fossil fuels by households and motor vehicle owners. This tax is justified by the need to raise money to pay for the cost of road construction and maintenance and does not have any specific environmental element.
Market forces are now dictating that the environment be put first and the rise of the electric vehicle is upon us.
The BIG Question for government and the future of our transport infrastructure is: “Where will the Fuel Tax come from if everyone switches to Electric Vevicles (EV’s)?”
The SIMPLE answer is: “Government (Eskom?) needs to put up a thousands of EV refueling stations that can pump electricity back into the grid when not refueling EV’s.”
Another important question is; “Would drivers of Electric Vehicles be covered by the Road Accident Fund which is funded from a Fuel Tax?”
Why is the Fuel Tax important to Government?
The fuel levies are mainly in the form of two indirect taxes:
- the General Fuel Levy
- the Road Accident Fund (RAF) Levy.
Put it simply – increases to fuel prices and taxes translate into increased transport costs which operators seek to recover by passing these on to consumers.
The fuel price is comprised of four main elements.
- General Fuel Levy,
- RAF Levy,
- Basic Fuel Price (freight and insurance costs, cargo dues, storage and financing),
- Wholesale and retail margins, and distribution and transport costs.
Consider that for every litre of fuel that you buy:
- 23% goes to the General Fuel Levey
- 14% goes to the Road Accident Fund Levy
- 22% goes to Associated Costs
- 41% goes to the Basic Fuel Price
In other words the Fuel Tax portion is around 37% of the price that we pay.
For every litre of fuel ‘saved’ by users of EV’s the Fuel Tax (to maintain roads and compensate victims) is 37% less than before – widespread adoption of EV’s has the capability to completely disrupt (bankrupt?) the Fuel Tax coffers.
We as a society need to consider that the early adopters of technology – as in electric vehicles – are normally intelligent people of means which, in our society could lead to further fracturing of relationships as the rich ‘escape’ from the fuel tax and use the roads paid for out of levies.
As a society we need to ensure that the shift to electric vehicles is managed in a holistic fashion that does not massively and suddenly erode the Fuel Tax base and contribute to wholesale degradation of our roads.
Latest posts by Alan Straton (see all)
- The State of the Electric Vehicle Market in South Africa - 3 April 2020
- No Evictions Please - 3 April 2020
- Police won’t accept non-compliant donations - 3 April 2020
- Police Minister elaborates on revisions to the Lockdown Regulations - 3 April 2020
- Ports implement heightened level of security protocols - 3 April 2020