Govt hikes fuel tax by 60%

The higher fuel tax is necessary to generate additional revenue for government.

05 February 2018 | Energy

The 60% increase amounts to around N$154 in additional revenue in 2018/19. – Dylan van Wyk, Cirrus Capital

Jo-Maré Duddy – Although the increase in fuel tax announced by the ministry of mines and energy won’t be much of a budget boost, it is a “move in the right direction”, Dylan van Wyk of Cirrus Capital says.

Van Wyk commented on the ministry’s statement on Friday, saying that, effective from 7 February 2018 [Wednesday], fuel tax will rise by 15c/l on the price of all regulated fuel products – from 25c/l currently to 40c/l.

“In order to generate additional revenue for the government, the ministry of finance has increased the tax on fuel,” mines and energy minister Obeth Kandjoze said in his statement.

Despite an under-recovery of between 3c/l and 6c/l on diesel in January, the ministry decided to keep the diesel price unchanged for February – N$11.73 per litre of diesel 500ppm and N$11.78 per litre of diesel 50ppm at Walvis Bay. An over-recovery of nearly 19.7c/l on 95 octane unleaded petrol was recorded as at 25 January this year. The petrol price of N$11.70 per litre at Walvis Bay will also remain the same this month.

Kandjoze said “fuel prices will be reduced by 15c/l in the ready reckoners in order to offset the fuel tax increase and keep the pump prices unchanged”.

Impact

In response to an enquiry by Market Watch, Van Wyk said the impact of an increase in fuel tax should have a small impact on the fiscal budget.

“According to the mid-year budget review, around N$256 million is estimated to be collected in 2017/18 budget year. The incremental tax (60% increase) amounts to around N$154 in additional revenue in 2018/19 while the deficit for 2018/19 is estimated to be in the region of N$7.8 billion,” he said.

“Still, this is a move in the right direction,” Van Wyk said. The timing of the increase to coincide with lower petrol prices, which results zero net effect on pump prices, will have no effect on consumers and minimal effect on inflation, which is a good thing, he added.

Oil price

Kandjoze said the results of the latest fuel price review indicate that the average Free On Board prices per barrel has increased for ULP 95 and for both diesel grades. Barrel prices for refined oil traded at an average of US$77.084 for ULP95, and US$79.693 and US$79.916 for diesel 500ppm and diesel 50ppm respectively.

“The Basic Fuel Price Unit Rate Slate calculations for the past month recorded a combination of minor over and under-recoveries on the price regulated petroleum products. The over- and under-recoveries recorded are not sufficient enough to trigger any adjustment in local pump prices,” he said.

The average exchange rate fell from N$13.1423 to about N$12.2642 per US$ over the period reviewed, Kandjoze said. “The appreciation of the N$ against the US$ has kept the balance between the regulated prices and the market prices intact,” he said.

Reuters reports that oil prices fell on Friday as the US dollar surged following strong US jobs numbers, though compliance with output cuts by OPEC and rising global demand kept much of the early-year oil rally in place.

Brent, the global benchmark, was down US$1.02, or 1.5%, to US$68.62 a barrel.

“Oil prices have come under pressure because of rising oil production in the US, together with a marginal rebound in the US dollar index. The price is currently in overbought territory, which has also promoted profit taking," said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London. – Additional reporting by Nampa/Reuters

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