In 2000 South Africa introduced a system whereby qualifying primary industries could apply for a tax rebate for their spending on diesel in their activities or production processes. This measure was set in motion to protect and stimulate primary production sectors in South Africa.

Covered In This Article

The rationale for the Rebate and Qualifying Industries
How do I qualify for a rebate?
Proposed Amendments to the Act
Conclusion

The Rationale for the Rebate and Qualifying Industries

The rationale behind this rebate system is to stimulate growth within the manufacturing sector. This tax claim is now more important than ever given the year-on-year slump experienced from 2017 to 2018. 

A few reasons for this were:

• Sluggish demand for locally produced goods;
• Poor international demand for South African manufactured goods;
• Continued growth in the imports of manufactured goods instead of buying from local producers.

The purpose of the rebate system is to support primary industries in South Africa so that they may operate on a profitable basis and remain in operation.

Qualifying industries that can apply for the Fuel Levy (FL) rebate and the Road Accident Fund (RAF) rebate are determined by the type of diesel used and the purposes for which it is used. Qualifying industries must be registered for VAT, as the rebate system is administered through the VAT in terms of the Customs and Excise Act (Act 91 of 1964) calculation of each business done annually. Qualifying industries include: 

• Primary producers (on land): 
• Offshore activities such as commercial fishing, coasting vessels, offshore mining, NSRI vessels, vessels conducting research in support of marine industry, coastal patrol vessels, and vessels servicing fibre optic telecommunications cables; 
• Harbour vessels; 
• Rail freight; and
• Peak power electricity generation plants (with a capacity of more than 200 MW). 

How Do I Qualify For A Rebate?

Firstly, you need to be registered for VAT. Businesses must also be registered for the diesel rebate with SARS using a VAT101D form - click here to download the form. The application process is essentially the same for all the qualifying industries mentioned, but there may be additional documentation necessary for a particular sector. Consult SARS, industry bodies, and the Customs and Excise Act for guidance on this.

The producer must be able to prove the amount of fuel that was consumed and for what purpose. A detailed logbook with relevant receipts must be kept.

It is important to keep a complete record, which includes references to:

• The date on which the diesel was dispensed;
• Quantity of diesel dispensed;
• Description of the vehicle; and
• Reason for which diesel was used.

It would be to the benefit of all qualifying industries to carefully read Schedule 6 of the Customs and Excise Act as the specific activities for which the fuel was used must be specified. Some of the requirements may change, but in the meantime stick to the letter of the law as stipulated in Schedule 6 and as explained on the ASL website. 

Proposed Amendments to the Act

The technical and administrative challenges of the current diesel refund system necessitate a systematic review to address the concerns highlighted above. Government proposes to review the diesel refund policy and administration system. Amendments will also address equity issues, ensuring that some sectors do not benefit disproportionately from the system. Whilst the holistic review is underway, interim amendments were necessary ahead of the longer-term reforms to address outstanding assessments, disputed cases and pending litigation.

Since then, these interim measures have been finalised and the required amendments to the current diesel refund provisions are being effected. This includes qualification for refunds by cessionaries of mining rights, small-scale farmers in sugarcane production, operational mining rehabilitation and reducing the FL benefit rate to 50 per cent for peak electricity generation plants.

All applications for registration under the new diesel refund system will require potential beneficiaries to provide details of: 

• The type and nature of qualifying primary production activities; 
• The physical site where such activities will take place; 
• The valid fishing permit or mining right where applicable and details of the holder, nominee or cessionary thereof; 
• An asset register of all diesel-powered equipment and vehicles to be used in production with details of the serial / VIN numbers and the diesel consumption specifications thereof; 
• A register of all diesel storage facilities linked to the qualifying production activities to be conducted; 
• Examples of logbooks and other recordkeeping will be maintained and updated to verify the abovementioned information. Diesel refund registrants will be required to enter into an agreement with SARS that inter alia specifies: 

• The person who has the management of the business as per section 103 of the C&E Act; 
• The specialist who has sufficient knowledge to ensure compliance; 

• An obligation for registrants to update their profile information and conclude new agreements annually with SARS. Diesel refunds will only be allowed in respect of claims that are substantiated by the abovementioned information.

Conclusion

Diesel refunds will only be allowed in respect of diesel dispensed from storage facilities formally on record with SARS to diesel-powered equipment and vehicles also formally on record with SARS. In addition to logbooks, claimants will be obliged to maintain proper service and repair records for such machinery and vehicles to prevent ghost claims. SARS is in the process of developing logbook templates in consultation with representative organised industries for each beneficiary sector.

The cost of diesel has a considerable impact on operational efficiency, with or without a rebate. If businesses don’t take an intelligent, informed approach toward cost optimisation, they could be at risk of missing cost-saving opportunities. For more information about saving on fuel spend, speak to an Astron Energy specialist today by clicking here. Our fuels technical team has broad industry experience in diesel and other fuels used in commercial environments.