A presentation by Johann van Rensburg delivered during the 2016 Southern African Road Transport Conference in Pretoria, South Africa. Johann van Rensburg is a lecturer in Transport Economics at Stellenbosch University. He holds a HonsBCom degree from Stellenbosch University and an MPhil degree from the University of Cape Town. He is currently a Ph.D. candidate with a research focus on transport infrastructure financing.

1. A kilometre-based road user
charge system:
Proof of concept study
Johann van Rensburg
Stephan Krygsman

2. What is the fuel levy?
• Definition:
o It is a indirect excise tax
o paid at the pump on fuel sales
o at a rate of 255 cents per litre of petrol
o and a rate of 240 cents per litre of diesel (April 2015)
• Note – there is a difference between a tax, a charge and a toll
o A tax can be used for anything including general government expenditure
o A charge covers the cost of a specific service rendered
o A toll is used to pay for the specific infrastructure used
2

3. What is the fuel levy?... (2)
• Contribution:
o 5% of national tax revenue – R48,5 billion (2014 / 2015)
o 4th highest income stream
35%
26%
20%
Fuel levy
5%
National tax revenue (2014 / 2015)
Personal income tax VAT Company income tax Fuel levy Company income tax (secondary) Custom duties Specific excise duties Other
3

4. What is the fuel levy used for?
• Introduced in 1935, for the construction of national roads
o National Road Fund
o 3 pence per gallon
o £1,3 million in 1936
• Dedicated (ring-fenced) road use fund between 1983 and 1988 only
o Only a few countries currently have a dedicated road fund - America
• Since 1988 fuel levy used for:
o Construction and maintenance of roads
o Support of public transport…
o General government expenditure (also found internationally)
4

5. What is the fuel levy used for?... (2)
• The argument for using the fuel levy for general government expenditure programmes:
o The fuel levy is a tax
o High income stream for government
o Government will not have control over funds if fuel levy was ring-fenced
• If fuel levy was still ring-fenced:
o May generate insufficient funds
o May even lead to wasteful road constructions
o Hamper other important social development objectives
o NB - Good roads are not a substitute for poor schools, bad hospitals or poor public transport
“A physician would never think of expressing the general state of health of a patient by one single scalar indicator. He
knows that good lungs are not a substitute for bad kidneys… Why cannot the engineer / economist… also shift… to that
way of thinking.” – János Kornai, 1979
5

6. Is there a problem with the continuing use of
the fuel levy?
A. Becoming unproductive – less fuel is being sold per vehicle per annum
o Technological and societal trends
o The result is less income generated per vehicle
o But there is an increase in the registered vehicles population and total vehicle kilometres travelled
6

7. Productivity…
Period: 2000 – 2014
o Registered vehicle population grew by 68%
o Vehicle kilometre travelled grew by 45%
o Fuel sales grew by 40%
Period: 2015 - 2050
o Registered vehicle population grew by 479%
o Vehicle kilometre travelled grew by 262%
o Fuel sales grew by 139%
7

8. Productivity…
8
100%
87%
81%
73%
62%
52%
44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2010 2015 2020 2030 2040 2050
Productivity
Year

9. Is there a problem with the continuing use of
the fuel levy?... (2)
B. There is an argument / belief that vehicles don’t pay for actual road use (road use cost
≠ fuel levy paid)
o Cost that should be recouped:
 Road construction and maintenance cost
 Congestion cost
 Environmental cost
 Social cost
NB - We do not recover all these costs
9

10. 10
Is there a problem with the continuing use of
the fuel levy?... (3)
C. It is a regressive tax as opposed to progressive tax
o Thus increasing the tax will hurt poorer road users
D. Road construction cost increased
o driven by inflation and scarcity of resources
o and increased labour cost
E. Government needs to spend more on roads than generated from road charges
o R48,5 billion vs an estimated R100 billion road maintenance backlog (Wittman, 2010)
o Shortfall – funded from municipal rate taxes and transport grants (Freeman, 1982)

11. Problem isolated to South Africa?
• NO – other countries also experiencing a decline in fuel levy revenues
• America, European nations, New Zealand and Australia
• These nations actively engaged in looking at alternatives
• How can South Africa generate additional income to make up for the shortfall?
o Identify, explore and test a viable and operationally feasible alternative
o That addresses many of the problems associated with the current SA fuel levy
11

12. What transportation financing solutions exist?
• Traditional:
o Fuel taxes
o Sales taxes on fuel purchases
o Vehicle registration fees
o Traditional bond proceeds
o Tolls
o General fund expenditure – income taxes, sales taxes, property taxes
o Other – inspection fees, driver licence etc.
 South Africa uses all these methods in some form, with the fuel levy contributing the highest
revenue from road users - about 80% (House of Commons, 2015)
12

13. What transportation financing solutions
exist?... (2)
• Non-traditional:
o Grant anticipation revenue vehicle – debt financing bond or lease
o Private activity bonds – debt financing for highway infrastructure
o Government credit assistance
o Public-private partnership – collaboration on a transportation project
o Other – traffic camera fees, emission fees, etc.
o Congestion and cordon pricing
o Kilometre-based road user charge
13

14. What transportation financing solutions
exist?... (3)
• Problem with methods (excluding kilometre-based and congestion pricing):
o Stimulate bad travel habits
 A tax should change bad behaviour to good behaviour
o Don’t address problems associated with fuel levy
 Small contributions to fund
14

15. What transportation financing solutions
exist?... (4)
• Two options remain:
o Congestion charge (cordon)
o Kilometre-based – our focus is on this
• It addresses the problems associated with current fuel levy system
1. Is not influenced by technological and societal trends
2. Can be a progressive tax
3. Generate more income to keep up with road construction costs
4. Is taxed for actual road use
15

16. 16
What transportation financing solutions
exist?... (5)
• Furthermore:
o It can supplement, complement and even in the future replace the fuel levy – provide sufficient income
o It is a policy sensitive alternative whereby if you change the tax, it impacts on road user’s behaviour
o It is in theory at least, relatively easy to implement
o It can inform road users of the road user costs they pay through an itemised road user charge monthly
bill
• So how will this work?....
o America – 26 states
o Europe – Switzerland, Austria, Germany, Hungary, Slovakia, the Czech republic and Poland
o France, Belgium and Russia
o New Zealand
o Developing countries?....

17. Kilometre-based road user charge system
• Many configurations – 11 key technical components
1. The purpose of implementation
o Reduce traffic congestion, excessive road wear , harmful emissions
2. Which vehicles to be charged
o Type, weight, number of axles, vehicle occupancy
3. Technological devices for measuring kilometres travelled
o Odometer, on-board device, GPS enabled, smartphone
4. Communication of the vehicle travel data
o DSRC, GSM, chip cards
5. Type of road to be charged
o National, provincial, municipal, CBD
17

18. 18
• Many configurations – 11 key technical components
6. Time of day to be charged
o Peak, off-peak
7. How much should be charged
o Variable rate, flat charge, amount?
8. Invoice billing
o Monthly, inform the road user, manage account
9. Enforcement of the system
o Prevent tampering with device, fixed or mobile checks
10. Protection of privacy
o No location data recorded, third party, device with privacy safeguards, legislation
11. Value-added services
o Automatic parking charges, tolls, insurance
Kilometre-based road user charge system… (2)

19. 19
Testing…
• Small scale proof of concept study in November 2015
o vehicle tracking study
o 1 vehicle
o 1 week
o configuration of selected technical components

20. 20
Testing… (2)
• System design:
1. To recover infrastructure cost incurred on road system by vehicles
2. All self-propelled vehicles – includes electric / hybrid / bio-fuel vehicles will be charged in addition to
paying the fuel levy
3. Fuel sales for other purposes than road use will still be taxed via the fuel levy system
4. Vehicle equipped with an removable on board GPS enables unit (to record longitude and latitude
data via GPS satellite signal)
5. Unit equipped with GSM technology (wireless data transfer through cellular network from device)
6. Daily vehicle odometer checks

21. 21

22. 22
Testing… (3)
• System design:
7. Data send to third party tracking company for database administration and privacy control
8. Web-based interface to show trip detail / map to road user.

23. Web-based interface
23
• Feedback to the user:
• Users must be able to revise their
travel behaviour and assess their
monthly invoice information
• Enable them to see how and where
they travelled
• Can be incorporated via a web-based
interface
• Contribute to them “trusting the
system”

24. 24
Testing… (4)
• System design:
9. Vehicle location data send to back-end system to calculate charge per kilometres travelled

25. Kilometre-based road user charge cost structure
Vehicle class Gross vehicle mass (kg)
Kilometre-based road user
charge per km
Motorcycles 180 15,88c
Motorcars 1 200 23,10c
Minibuses 2 400 23,10c
LDV's - Bakkies 2 100 23,10c
Buses 14 800 92,94c
Trucks 14 200 – 49 000 138,03c
Other & Unknown 14 200 89,70c
25

26. 26
Testing… (5)
• System design:
10. Road user received itemised billing invoice for money due

27. 27

28. 28

29. Kilometre-based road user monthly invoice
29

30. (Van Rensburg and Krygsman, 2015)
30

31. Conclusion
• Aim was to:
1. Identify,
2. Explore,
3. Test
• a viable and operationally feasible alternative
• to the South African fuel levy
31

32. 32
Conclusion… (2)
• Recommend:
o Investigating the possibility of supplementing or replacing the fuel levy
o Kilometre-based road user charge
• Not influenced by technological or societal trends
• Not dependant on fuel sales
• Can equip vehicles for future initiatives such as congestion pricing

33. 33
Conclusion… (3)
• Kilometre based road user charge system:
o Many configurations exist
o Comprising of various key technical components
• Vehicles charged
• Devices to measure distance
• Privacy etc.

34. 34
Conclusion… (4)
• Vehicle tracking experiment:
o Operationally feasible on a small scale
• Technology exist
• Easy to use
• Data accurate
• Data secure
• Invoice constructed with ease

35. 35
Conclusion… (5)
• Future research:
o Operationally and technically feasible on a larger scale
o Policy, social and equity concerns
• Variable road user charges
• Road users response to acceptability and experience

36. Thank you
Questions?
36