South Africa will reduce its fuel levy for a month in April to prevent fuel prices from rising further, after trade unions and business groups pressured the government to intervene to mitigate the impact of the Iran war.
The finance and petroleum ministries said in a statement that the government would recover through other mechanisms the 6 billion rand ($350.69 million) of tax revenue it would forego through the short-term levy cut.
The statement said a comprehensive package of measures to support households and key sectors of the economy is underway, as regulated petrol prices will rise by about 15% and wholesale diesel prices by 40% in April despite the levy cut.
The general fuel levy will be reduced by 3 Rand for April, taking the levy to 1.10 Rand per liter for petrol and 0.93 Rand per liter for diesel.
Finance Minister Enoch Godongwana told reporters that the government would monitor developments in the Middle East and if the conflict continues, it may grant some relief on fuel levies in May and June.
“I don't think it can be sustained beyond June,” he said.
Levy cuts reflect move to 2022 amid Ukraine crisis
South Africa implemented a similar relief in 2022 following Russia's start of war in Ukraine.
The 1.5 rand per liter cut continued for several months, first being reduced and then withdrawn.
South Africa's central bank warned of inflation risks from rising fuel prices at its monetary policy meeting last week, saying fuel inflation is expected to exceed 18% in the second quarter.
The risk-sensitive rand has fallen about 7% against the dollar since the US and Israel launched attacks on Iran in late February, raising inflation risks.
Exposed to global energy shocks
South Africa imports most of its petroleum products, leaving it exposed to fluctuations in global energy prices.
Africa's largest economy adjusts fuel prices monthly using a formula that factors in fluctuations in global crude prices, exchange rates and local taxes such as fuel levies.
Price changes take effect on the first Wednesday of each month.
($1 = 17.1091 rand)
Source: reuters