South Africa to Lower Fuel Tax as Gasoline Price Spike Looms

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(Bloomberg) — South Africa will reduce a tax imposed on fuel to offset the impact of surging oil prices on domestic gasoline, Finance Minister Enoch Godongwana said.

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The levy will be reduced by 3 rand ($0.18) per liter for both gasoline and diesel in April, Godongwana said in an interview at the South Africa Investment Conference in Johannesburg on Tuesday. The measure will be announced at a briefing later in the day, he said.

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“I will temporarily be lowering the fuel levy for this month of April by three rand and then I am still discussing what we can do for the next two months,” Godongwana said.

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The measure, which comes as other oil-importing nations including South Korea and the Philippines take steps to soften the impact on their economies of the Iran war, signals concern about the potential implications for inflation and consumer demand. 

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South Africa’s central bank is targeting inflation of 3% and the government was projecting economic growth this year of 1.6% before the conflict began. Oil prices have surged almost 50% since the US and Israel attacked Iran on Feb. 28.

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“It’s a prudent decision,” said Michael Grobler, a fixed-income strategist at Ashburton Fund Managers Ltd. “I think it will blunt the inflation impact and help preserve GDP growth” while also tempering rate-hike expectations, he said.

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Forward-rate agreements are currently pricing three 25 basis-point interest-rate hikes through November, including one at the next monetary policy committee meeting in May.

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Data from South Africa’s Central Energy Fund suggested that as a result of the surge in oil and the weakening of rand against the dollar, the retail price for 95-octane gasoline may jump almost 30% on Wednesday, with the wholesale cost of diesel expected to rise by more than half.

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South Africa previously reduced its general fuel levy temporarily in 2022 to help offset a rise in prices after Russia’s invasion of Ukraine. The fuel levy raised an estimated 97 billion rand in the financial year that ends on Tuesday, according to the National Treasury.

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The general fuel levy on gasoline is currently 4.01 rand per liter and prior to Godongwana’s announcement had been set to increase to 4.10 on Wednesday. For diesel, the general fuel levy is 3.85 rand and was set to rise to 3.93 rand. The Road Accident Fund levy is set to climb to 2.25 rand from 2.18.

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—With assistance from Paul Vecchiatto, Mpho Hlakudi and Robert Brand.

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(Updates with fixed-income strategist comment in sixth paragraph, FRA prices in seventh)

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