The diesel refund system introduced in 2000 has become increasingly onerous to comply with. Many taxpayers consider the cost and effort not worth their while.
Government extended the rebate to the manufacturers of foodstuffs in April last year for a period of two years due to the impact of load shedding on the price of food.
However, it appears that many have not bothered to take government up on the offer, says Christo Theron, indirect tax expert and webinar presenter of The Tax Faculty.
He said at a recent webinar relating to indirect taxes and specifically value-added tax (Vat) and the diesel rebate that for many manufacturers the rebate does not add value at a level that justifies the cost and effort. “The cost far outweighs the benefits.”
The diesel rebate for manufacturers of foodstuffs will come to an end at the end of March next year. The country is still experiencing high levels of load shedding on a daily basis.
The system was initially introduced to provide full or partial relief for the general fuel levy and the Road Accident Fund (RAF) levy to primary sectors such as farming, forestry, fishing and mining.
In the 2023/24 tax year these two levies, as well as customs and excise and the carbon tax, made up 28.9% of the pump price for 93 octane and 28.3% for diesel.
Boxes to tick
The first requirement for a user of distillate fuel to claim a rebate is to register as a Vat vendor. A farmer who is not registered for Vat is immediately out of the loop.
The rebate can only be claimed by “qualifying industries” when conducting “qualifying activities” using “qualifying equipment or machinery”.
Farming has 29 qualifying activities listed, including growing crops, harvesting and storing crops on the farming property, the storage of farming products, and game farming but excluding leisure activities such as game viewing and lodging.
Read/listen: The impact of load shedding on food security
Farming has the “most comprehensive” list of activities. There is not much that can happen on a farm that is not listed, says Theron.
However, there is no list for the qualifying equipment and machinery that may be used.
It is little wonder that this causes disputes between Sars and taxpayers. Diesel used in generators to keep the lights on and electric fences live, for example, cannot be claimed – but if used for the storage of products it can be claimed.
The level of detail required for record-keeping in order to substantiate claims is intense.
It includes, among others, the “source of fuel, date, place and purpose of utilisation, equipment fuelled, eligible or non-eligible operations performed and records of fuel consumed by any such machine, vehicle, device or system”.
The South African Revenue Service (Sars) has been challenging claims for the fuel used by a tractor that transported farm workers from one place to another and for ploughing land.
In practice this means a farmer who uses their tractor to transport people, plough their land and tow a bakkie out of a ditch must do an apportionment between eligible and non-eligible use.
Theron says if the tractor used 100 litres of diesel, for example, the farmer must determine the fuel consumption when ploughing the land compared to other non-eligible activities such as towing a bakkie out of a ditch.
“I have not seen too many logbooks complying with all these requirements.”
There are several other red flags when considering whether a claim will be successful or not, says Theron.
One is that the diesel must be delivered to and disposed of at a depot on the premises of the operations.
And if a mine claiming the rebate is not the holder of the mining rights there will be no rebate.
Although a full tax invoice is only required for purchases of more than R5 000 for Vat purposes, Sars requires full tax invoices for all purchases greater than R500 for the diesel rebate.
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Currently claims for fuel rebates by qualifying industries are submitted with the taxpayer’s Vat returns, while manufacturers of foodstuffs have to submit a separate return to Sars.
Theron believes the splitting of the Vat and rebate return will be the process for future claims, although it is not yet incorporated into the Vat system.
Listen to Avhapfani Tshifularo of the South African Petroleum Industry Association speaking about the issue of some unscrupulous fuel suppliers mixing diesel with paraffin (or read the transcript):
You can also listen to this podcast on iono.fm here.