By BDO Insights December 2022
Over the past five years, there have been various discussions between SARS, the National Treasury and stakeholders from multiple industries regarding the reform of the diesel refund system.
Various meetings were held with the stakeholders to understand better the processes followed by each industry. This assisted SARS and National Treasury in determining which activities should qualify as “own primary production activities”.
The Customs and Excise Act authorises a refund of the Fuel and Road Accident Fund levy in certain circumstances if the requirements are met. Part 3 of Schedule 6 and its Notes regulate SARS’ administration of the diesel refund system.
The main requirement is for the user to purchase diesel for their “own primary production activities” in that specific industry.
Due to the lack of clarity on several system requirements, over the years, we have seen various disputes with SARS regarding the eligibility of certain purchases, compliance, and record-keeping requirements.
One significant judgment was that in CSARS v Glencore Operations (Pty) Ltd (Case no 462/2020) [2021] ZASCA 111 (10 August 2021), where the contentious issue was whether the list of primary activities was exhaustive.
The High Court held that the list is not exhaustive; however, in 2021, the Supreme Court of Appeal (SCA) held that the list is exhaustive. According to the SCA: “A non-exhaustive list would lead to unbusinesslike or insensible result (sic). This is so because an interpretation that favours a non-exhaustive list has a potential to frustrate the principal purpose sought to be advanced by the imposition of fuel levies on diesel in the first place”.
The SCA further held that the legislature intended only primary activities to benefit from the scheme, not “all mining” activities.
In 2020 and 2021, the draft rule and schedule amendments were released for comment. On 18 March 2022, the Minister of Finance published amendments under Government Gazettes No 45056 (R1893 and R1892), “the latest amendments”.
The first significant amendment implemented is the inclusion of “wet contractors” in the definition of a “user”. This amendment permits contractors contracted on a wet basis to also claim diesel refunds of their own.
The draft amendments published in 2020 and 2021 proposed that the definition of “user” be amended to indicate that a user is only required to register for diesel refund purposes under the Customs and Excise Act, and not for VAT purposes. This amendment was not implemented in the latest revisions.
The latest amendments require the user to create a “diesel refund user” registration profile on the SARS website for that purpose and provide the following information:
- The category of qualifying activities performed
- The location where the qualifying activities are performed
- Storage facilities for eligible purchases
- Assets powered by eligible purchases of the diesel refund user, along with the identifying features, make, model, and fuel tank capacity thereof, as well as the physical address of any such asset situated at a fixed geographical location.
Furthermore, the list of primary activities is now limited to those listed in the specific Notes. Activities deemed not to constitute primary activities are specifically excluded. This amendment supports the SCA’s view in the Glencore case that the legislature intends that the list of qualifying primary activities is exhaustive and should be limited to the activities listed in the Notes.
Lists of equipment and vehicles regarded as dedicated to performing predominantly qualifying activities were amended. In terms of the latest amendments, a detailed usage logbook is not required when equipment and vehicles are directly powered by diesel. The user is only required to substantiate the receipt and dispensing of the diesel.
However, suppose the user performs more than one category of primary or non-qualifying activities. In that case, the user must keep a detailed logbook demonstrating how the diesel was obtained, purchased, collected, delivered, stored, dispensed for use, used, disposed of or lost in respect of qualifying and non-qualifying activities.
This amendment provides welcome clarity on logbook requirements. It relaxes the onerous burden on users, especially when their vehicles and machinery are predominantly used for primary activities.
The effective date of the 2022 Amendments is still to be determined.
Source: WoodBiz Africa Magazine
