IMESA POSITION PAPER: FUEL LEVIES
IMESA POSITION PAPER:
FUEL LEVIES
DOCUMENT FOR DISCUSSION
APRIL 2006
Drafted by:
E Byker Pr Eng BSc BEng MIMESA
(on behalf of the Roads & Stormwater Working Group of the Western Cape branch of IMESA)
TABLE OF CONTENTS
PAGE
1.INTRODUCTION 3
2.STATUS OF ROAD FUNDING IN GENERAL 3
3.LEGALBACKGROUND 3
4.FUEL LEVIES AS A FUNDING MECHANISM 4
5.SUMMARY OF IMESA'S POSITION 5
1INTRODUCTION
The maintenance, management and development of roads infrastructure is a costly business, and should always be major items on any national, provincial and local government's capital and operational budgets. Because of competition for funds, these budgets have over the years decreased to unacceptable low levels. This position paper looks at Fuel Levies as a method of generating funds for the maintenance and development of roads and other land transport infrastructure.
The purpose of this paper is to serve as a basis for further discussion within IMESA, and in representations to state agencies on the matter.
2STATUS OF ROAD FUNDING IN GENERAL
Transport and accessibility is crucial to achieving sustainable development, balancing social aspects and economic development. The road network is at the core of a transport system.
The condition of many of our transport arteries nationwide is evidence that insufficient funds are being invested in the management and preservation of these assets. A growing population and economy, especially in the metropolitan areas, adds to the need for additional investment. Equally clear is that neither the local nor the provincial governments are able to afford the necessary funding out of current budgets and that it is necessary to establish a financial framework able to source adequate funding on a sustainable basis.
Analysis of investment in the transport system of the past 20 years is further evidence of a serious downward spiral, which if not arrested immediately will lead to a throttling of our economy and result in significantly more funds required to urgently reconstruct as opposed to rehabilitate or maintain in a programmed way.
Current budget allocations are insufficient to cope with maintenance of existing infrastructure, and are certainly not sufficient to meet increasing demands. Adhoc budget priorities are not focussed on creation of sustainable development and jobs. Traffic congestion, road maintenance and public transport services are deteriorating significantly. In these circumstances worldclass city aspirations are unattainable.
Substantial funds are required on an ongoing basis to maintain existing transport assets and to provide for future development and growth; and in recognition of the fact that the transport system is central to the economy of the country in that it provides all the necessary connections and accesses.
With regard to Clause 228 of the Constitution, failure to source significant additional funding for transport generally on an ongoing basis will indeed disrupt and prejudice economic activity on a national, provincial and local level.
3LEGAL BACKGROUND
The Constitution of the Republic of South Africa 1996, Act 108 of 1996, provides the basis for imposition of levies.
Provincial taxes
228(1) A provincial legislature may impose taxes, levies and duties other than income tax, valueadded tax, general sales tax, rates on property or customs duties; and flatrate surcharges on the tax bases of any tax, levy or duty that is imposed by national legislation, other than the tax bases of corporate income tax, valueadded tax, rates on property or customs duties.
(2) The power of a provincial legislature to impose taxes, levies, duties and surcharges may not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across provincial boundaries, or the national mobility of goods, services, capital or labour; and must be regulated in terms of an Act of Parliament, which may be enacted only after any recommendations of the Financial and Fiscal Commission have been considered.
The imposition of Provincial Taxes (including fuel levies) is regulated by the Provincial Tax Regulation Process Act, Act 53 of 2001.
The National Land Transport Transition Act (Act 22 of 2000) Section 4 (1) (o) states:
The principle of user charging or cost recovery from direct users should be applied wherever appropriate and possible, in that such users should pay for all or most of the costs related to the service or activity in question.
4FUEL LEVIES AS A FUNDING MECHANISM
The principle of "user pays" is a fair and equitable way to approach the funding problem.
Existing funding sources are licence fees, parking levies, municipal rates, land development levies, advertising, and fuel levies. The most equitable of these is the fuel levy or shadow toll or tariff for the use of roads by motorised vehicles, being the only one where the amount paid by users is proportional to the actual use of the infrastructure. (Special arrangements for industrial and agricultural use of fuels should be relatively easy to manage, especially since these fuels are mostly sourced in bulk as opposed to through service stations.)
Advantages of Fuel Levies:
- Funds generated from use of roads by motorised vehicles can be applied to all roads, not only some as in the case of tolls.
- Guaranteed source of income.
- Contributions by users are in direct proportion to the amount of use of the roads.
- Acceptability by the public, provided the levy is accompanied by publicity drives to convey the true intent thereof, and a sincere effort to avoid hiving off of funds as has happened to the existing fuel levy.
- Easy and cost effective collection of tariff through existing service stations.
- Funds are generated almost totally in the area where these are needed; no "tax evasion" as does occur with the registration of vehicles.
- No expensive infrastructure required purely for the collection of funds.
- No "third party" profits to be funded.
- No diversion of traffic from tolled routes to non-tolled routes.
Legislation has been passed that makes this shadow tolling possible, namely, Act 53 of 2001: Provincial Tax Regulation Process Act, 2001. The Act is promulgated so as to regulate an intergovernmental process that must be followed by provinces in the exercise of their power in terms of section 228 of the Constitution to impose taxes, levies and duties, and flat rate surcharges on the tax basis of any tax, levy or duty imposed by national legislation; and to provide for matters connected therewith.
All petrol and diesel driven vehicle users will contribute to a transport system that will be world standard and sustainable and that unless the whole system is adequately funded and not just the upgrading of a particular element, the balance of the system will continue to deteriorate and un-sustainability will continue.
5SUMMARY OF IMESA'S POSITION
5.1The existing Fuel Levy should predominantly be viewed as the best available surrogate usercharge or tariff for all motorised vehicles using the entire road system in South Africa (national, provincial, municipal and private) The income should be distributed to the various public road authorities in proportion to the vehicle kilometres of use and the required length of the roads under the respective jurisdiction of these authorities.
5.2If insufficient income can be made available by the national sphere of government from the existing Fuel Levy, for whatever reason, IMESA should support the introduction of a tariff on the Fuel Levy on condition that the income be distributed to provincial and municipal transport departments in proportion to the motorised vehicle kilometres of use and the required lane kilometres of the road networks under the jurisdiction of these road authorities.
5.3Income from the Vehicle Licence and Registration Fees should be distributed to Provincial and Municipal Departments of Transport and Roads on the same basis as proposed for the Fuel Levy and any Tariff thereon.
5.4Facilities for Nonmotorised Transport should be provided from income from general rates and taxes imposed by each sphere of government.
5.5Public Transport facilities and operations should be funded from the fares charged for their use. If this does not result in the desired level of use or income, then some crosssubsidisation from the Fuel Levy or Tariff thereon could be considered. Obviously, this will not be financially sustainable if and when the majority of transport users are public transport or nonmotorised transport users. As public transport could be regarded as a basic need, subsidy from general tax revenue could also be justified as being in the public interest.
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