The South African government announced on Tuesday (31) that it will reduce the fuel tax for one month to prevent fuel prices from rising further this month, following pressure from unions and business groups for the government to intervene to mitigate the impact of the war in Iran.
The ministries of Finance and Petroleum stated in a press release that the government will recoup, through other mechanisms, the approximately $350.69 million in tax revenue it will forgo due to this temporary tax reduction.
A broader package of measures to support families and key sectors of the economy is currently being developed. Despite the tax cut, the regulated price of gasoline is expected to rise by about 15% this month, while diesel on the wholesale market could increase by 40%.
The general fuel tax will be reduced by 0.16 cents this month, dropping to 0.06 cents per liter for gasoline and 0.05 cents per liter for diesel.
Finance Minister Enoch Godongwana told reporters that the government will monitor developments in the Middle East and that, if the conflict persists, it may grant some additional tax relief in May and June.
“I don’t think this can be maintained beyond June,” the official said.
Rate cut mirrors 2022 measure during the Ukraine crisis
South Africa implemented a similar measure in 2022, following the start of Russia’s war in Ukraine.
That reduction of 0.08 cents per liter remained in place for several months before being gradually scaled back and eventually withdrawn.
The South African central bank warned of inflationary risks stemming from rising fuel prices at its latest monetary policy meeting, forecasting fuel inflation of over 18% in the second quarter.
The rand, a risk-sensitive currency, has already depreciated by nearly 7% against the dollar since the U.S. and Israeli strikes on Iran in late February, exacerbating inflationary pressures.
Economy Exposed to Global Energy Shocks
South Africa imports most of its petroleum products, making it highly vulnerable to fluctuations in global energy prices.
Africa’s largest economy adjusts fuel prices monthly based on a formula that includes changes in international crude oil prices, the exchange rate, and local taxes such as the fuel tax.
