Will Gordhan double up on fuel levy at Budget 2017? Significant knock on effects explained.

In the Mid-Term Budget Policy Statement, gross tax revenues were expected to fall short of targets by R36.3bn, and R51.9bn over the next two tax years. The statement proposed raising an extra R43bn through tax measures over this period to help close the shortfall. But with anaemic growth coupled with a need to raise more money, most taxpayers will be weary of how such measures at Pravin Gordhan’s budget will directly impact their pockets. VAT and wealth taxes are two theories being thrown around the room. Another concern is highlighted by Investec’s Adam Orlin in the piece below. It’s an anticipated increase in the fuel levy, which on top of last year’s 30 cents per litre addition, could have significant knock on effects. – Stuart Lowman

From Fin24

Cape Town – An anticipated increase in the fuel levy in Budget 2017 later this month will have a significant knock-on effect, Adam Orlin, head of Investec Import Solutions, cautioned on Wednesday.

In his view, the anticipated increase in the fuel levy will not only negatively impact consumers and businesses, but also place importers under increased pressure in already challenging market conditions.

“With several economists of the opinion that the price of petrol and the fuel levy will continue to rise this year, the knock-on impact this will have in the South African market will be significant. The transport industry is already operating under incredibly low margins, so any additional increases could be quite damaging,” he explained.

This is expected to see a further increase in transport costs as the industry attempts to mitigate the additional economic expenditures.

“In a price-conscious market, we are incredibly aware of all the related increases that changes to the fuel levy – and per implication the petrol price – will have for all South Africans. Even though the impact on inflation might not be as bad as anticipated, importers need to be even more savvy in terms of how they position their products in a cash-strapped market,” said Orlin.

Pravin Gordhan

“There is, unfortunately, no silver bullet to addressing higher fuel levies. Despite importers doing future-forward planning around these increases, the reality sees consumers ultimately paying the price of a leaner supply chain. Profitability is already under the spotlight so decision-makers at importers and transport companies are feeling the pressure to do more than simply raising prices.”

Some of these initiatives could include enhancing partnerships between importers and transport and logistics companies. Implementing new technology on the back-end to manage the supply chain more efficiently could also assist in cutting unnecessary costs.

“Additionally, import and working capital specialists can go a long way in freeing up capital that is traditionally tied in with stock and imports. For a business limited by cash flow, this is a game changer as businesses can offset costs with additional benefits where debt can actually help them grow,” said Orlin.

“Despite the negative sentiment around the fuel levy increase and the economic challenges it creates, there are also opportunities for importers to find even more innovative ways of using available technologies and other solutions. And while the risk to the collective pockets of South Africans is real, it should not be all doom and gloom as importers identify other ways of delivering value.” – Fin24


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