The South African Fuel Levy Cut And What It Reveals About Government

“The government knows precisely what to do to make life easier for South Africans: tax less.”

Photo by engin akyurt on Unsplash

Reuters reported that the South African government – to reduce costs for the South African people in these hard times – decided to cut the fuel levy for a month, to limit pump price hikes. They announced at the time of the writing of this article (May 2026) that they would extend the relief for another two months.

This is a good economic decision that unwittingly exposes that the government knows precisely what to do to make life easier for South Africans. The South African government – without any monetary policy – caused a reduction in the price of a commodity – a commodity that’s coincidentally an input factor in the production of most other commodities.

Think about it for a moment: there have been times when the South African government – and the governments of other countries – have blamed all manner of factors for high prices, when they could have just done something to make the prices cheaper for citizens.

A Nigerian nightmare

Nigerian billionaire Aliko Dangote said recently at an event that the Nigerian government makes more money from his cement business than he does; that for every one naira his company turns around, the government makes 52 kobo. If his use of “turnaround” was conventional, then the government takes 52% of his revenue. A bag of cement sits at between ₦10,000 and ₦12,000, meaning that without the heavy tax burden imposed on the people by the Nigerian government, a bag of cement would sit between ₦4,800 and ₦5,760 – even in this incredibly inflationary economy. The Nigerian government more than doubles cement prices, as well as the prices of many other commodities.

The Nigerian government has blamed high cement prices on everything but itself, when it is directly responsible for at least 52% of its total price.

Think what would happen if the Nigerian government decides to remove taxes on cement: the prices would be cut in half – at least – overnight.

How taxes affect final prices and economic activity

Most goods pass through multiple stages before reaching consumers, including production, transportation, wholesale distribution, and retail. At each stage, different forms of taxation may apply, such as corporate taxes, consumption taxes like VAT, import duties on inputs or machinery, fuel taxes affecting transport costs, and various sector-specific levies and fees.

Since these costs accumulate across the supply chain, they make up the final price paid by consumers. A reduction in any of these taxes can therefore lower costs not only at a single point but across multiple stages of production and distribution.

For example, fuel is important in transport and logistics. Lower fuel taxation reduces transport costs, which then affects the pricing of a wide range of goods that depend on distribution networks. This, in turn, creates a cascading effect through the economy.

When taxes are reduced, two closely linked effects typically occur. First, final consumer prices tend to fall because part of the cost structure is removed. This increases the purchasing power of households, allowing the same income to buy more goods and services. Second, business costs fall, particularly in sectors where taxed inputs make up a significant share of total expenses. As a result, some activities that were previously not profitable may become profitable.

Together, these effects can increase overall economic activity. Lower prices improve real purchasing power, while reduced costs enable firms to expand production, hire additional labour, or invest in new capacity. Consumers can spend more on goods and services, while businesses respond to improved profitability conditions.

Is taxation even necessary?

Some would argue that the revenue would help with expenditure, that if those taxes aren’t collected, the government wouldn’t have enough to spend. I don’t live in South Africa, but I doubt that any of the services offered by the South African government have seriously suffered because of these cuts.

Considering the endless corruption scandals in South Africa, Nigeria, and pretty much every country on earth, would it not be the more prudent decision to cut even more taxes, to limit incidences of embezzled funds while simultaneously boosting productivity and making the lives of citizens much easier?

Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.