Nothing about the decades-long mismanagement of Eskom is fair — not the sheltering of senior politicians from the full impact of load-shedding, nor the failure to hold all the post-1998 Eskom board members responsible. Also unfair is that businesses that are now forced to rely on generators to keep their doors open are obliged to make a hefty contribution to state coffers with every litre of diesel they buy.
That contribution from all diesel consumers currently stands at R6.12/l. It’s made up of the general fuel levy of R3.94/l and the R2.18/l contribution to the Road Accident Fund (RAF). That means 37% of the price of every litre of diesel bought ends up in government coffers, including the chronically mismanaged RAF.
Also not fair is that fuel prices have surged just as Eskom plunges South Africa even deeper into the dark.
Having touched a low of about R10/l in the first months of 2020, the price of diesel rocketed to R25.40/l in July 2022. It has eased off in recent months, but at more than R20/l it’s still way above levels previously seen.
This combination of record fuel prices and the unavoidable surge in demand for diesel has helped shore up government coffers. It’s pretty simple: 37% of R25.40 generates considerably more tax than 37% of R10.
The National Treasury’s Budget Review for 2022 provides a grim perspective of the hit South Africans have taken. Back in 2005 the fuel levy generated R19.2bn for the South African Revenue Service (Sars). That figure increased at a reasonable pace until 2015, when it reached R48.4bn. It rose to R90bn in 2022 and is forecast to hit R100bn in 2025.
It has become an extremely valuable source of revenue, they will not let go of it easily
— Bernard Mofokeng
This compares with R500bn expected from VAT and R286bn from corporate income tax.
The Treasury doesn’t break that R90bn down into the separate contributions from petrol, diesel, jet fuel and paraffin, but economists assume petrol and diesel generate by far the largest portion. The surge in diesel consumption over the past decade means it is probably generating similar levels to petrol.
Bernard Mofokeng, head of tax at law firm CMS, reckons the Treasury will be reluctant to add generator owners to the short list of parties allowed tax rebates on diesel purchases. “[Tax revenue on diesel] has become an extremely valuable source of revenue, they will not let go of it easily,” he tells the FM.
Not that the government hasn’t thought of changing the diesel refund system. A discussion paper released by the Treasury and Sars in 2017 talked of the need for change — but that was largely about improving the administration of the system and cutting back on abuse.
As it stands, parties involved in primary production (forestry, mining and farming, for example) are allowed rebates as long as they’re registered for VAT and keep detailed accounts of their diesel consumption. The rationale, as pointed out by the Treasury, is “the protection of international competitiveness” and “the reduction of the road-related tax burden for certain nonroad users from the RAF levy”.
This is no doubt why Eskom itself believes it should get back the billions of rand in levies it’s paying for diesel.
In 2017, the Treasury was already wary of Eskom’s potential “abuse” of the refund system. In its discussion document it talks of reducing the refund for generation of electricity by Eskom’s open-cycle gas turbines.
“The current full exemption provides a perverse incentive to use diesel excessively,” says the document. After that warning, Eskom’s refunds went from a reasonable R32m in 2017/2018 to more than R1bn in 2018/2019, hitting a record high of R1.9bn in 2019/2020 before easing back slightly to R1.7bn in 2021.
Mafokeng says the logic behind the rebate system is that people who don’t use the road infrastructure shouldn’t be required to subsidise those who do and also shouldn’t have to contribute to the RAF. Thus, he believes, it should be extended to the tens of thousands of businesses that are forced to buy diesel for their generators.
“The rebate would improve cash flow and increase the chance of survival,” says Mofokeng.
The Treasury tells the FM it isn’t able to discuss policy matters just before the national budget, to be delivered later this month. “But we can confirm that we have received submissions with this policy proposal.”
Dennis Davis, who led the Davis tax committee and is a member of the commission of inquiry into the tax structure of South Africa, thinks it’s a proposal worth implementing.
“It should certainly enjoy a carve-out, at least until a reliable electricity service resumes,” he tells the FM.
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