Fuel levy needs a rethink

The fuel levy or tax on each litre of petrol is an important revenue stream for government, but this stream could dry up in the near future, says professor Stephan Krygsman, a transport economics expert in the department of logistics at Stellenbosch University. Krygsman is doing research on the ways in which road users are being taxed and whether these are efficient.

He says even though there is an increase in the number of vehicles on the country’s roads, the fuel levy, which contributes 5% to national tax revenue, could be gone in 10 years. The fuel levy is the fourth biggest source of income for government after income tax, company tax and vat.

Krygsman says the fuel levy remains popular with government because it’s a revenue source that’s difficult for people to evade. It’s also simple and easy to the levy charges, and administration costs are very low. It used to be a fair tax which reflected the costs of road use.

But Krygsman believes the fuel levy has probably exhausted its time as a long-term sustainable road-user charge. It’s likely to become increasingly unproductive as vehicles’ fuel efficiency increases and the use of electric and hybrid vehicles takes hold.

“In 2000, the fuel levy was at 100% productivity, but since then there’s been roughly a 1.1% decrease in annual productivity,” he says. “By 2040, greater fuel efficiency will reduce the fuel tax by almost 48% per vehicle.”

Electric vehicles could hasten the demise of the fuel levy. They use less or no fuel at all, resulting in less fuel consumption per kilometre, which means the fuel levy income will decrease.

“It’s being estimated that by 2040, electric cars could make up 30 to 40% of the world’s two billion cars. Together with the increased fuel efficiency of internal combustion vehicles, this would translate into savings of millions of barrels oil a year. And, of course, savings in fuel levies and taxes.”

Krygsman points out that countries like Norway, the Netherlands, Germany, France and the United Kingdom are already putting plans in place to ban sales of diesel-powered vehicles by 2040. In some countries, diesels cars may be banned from city centres as early as 2025. 

He says government will need to find alternative ways to generate funds for the construction and maintenance of South Africa’s roads.

“There is a need to move away from a general fuel tax that is dependent on fuel sales to a road-user pricing system that reflects the actual costs that road users and society incur.”

Kilometre-based system

Krygsman says one way to replace the fuel levy would be to introduce a kilometre-based road-user charge system.

“Road users would be charged for the distance they travel. They would pay per kilometre, and get an invoice at the end of the month.”

With an onboard GPS, it will be possible to track different vehicle types in charging for actual road use. The charge would be based on the distance travelled, the type of vehicle (motorcycle, car, heavy truck), the weight of the vehicle, the time of day, and where the travelling takes place (cities or rural areas). This data would then be transmitted through a cellular network and used to calculate the amount payable by each road user.”

“If this sounds too far-fetched, just think about cellphone companies billing you for the data you use or the monthly water and electricity bills you receive from your local municipality,” says Krygsman. “Why can’t we apply the same principle to roads?”

He adds that with a distance-based system, the vehicle’s fuel efficiency won’t influence the charge and everyone will pay according to the type of vehicle they have and the distances they travel.

“If we set the right price, this system could deliver sufficient income for government.”

Krygsman says several issues would need to be considered before such a system could be implemented, including privacy and ethical considerations, user needs, technical system requirements and the role of government.

Distance-based weight levies have already been implemented in some countries, and a considerable amount of research is being done internationally in this area.

Krygsman’s research group has started a pilot programme in the Western Cape to test the kilometre-based charging system.

“We will have to find another way to pay for road usage,” he says, adding that people are becoming more and more suspicious about the fuel levy and fuel-burning cars may not be around in the future. “We have to start working on new alternatives.”

* Dr Alec Basson is senior science writer at Stellenbosch University. 

Source: moneyweb.co.za