Over the past 5 years, there have been various discussions between SARS, the National Treasury and stakeholders from various industries regarding the reform of the diesel refund system.
Various meetings were held with the stakeholders to better understand the processes followed by each industry, which assisted SARS and National Treasury to determine which activities should qualify as “own primary production activities”.
The Customs and Excise Act authorises a refund of the Fuel and Road Accident Fund to levy in certain circumstances if the requirements are met. Part 3 of Schedule 6 and the Notes thereto regulate SARS's administration of the diesel refund system.
The main requirement is that the user must purchase the diesel for use as fuel for “own primary production activities” in that specific industry.
Due to the lack of clarity on several requirements of the system, 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)  ZASCA 111 (10 August 2021), where the contentious issue was whether the list of primary activities was an exhaustive list.
The High Court held that the list is not exhaustive; however, in 2021, the Supreme Court of Appeal (“the 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 that only primary activities should benefit from the scheme and 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 (R.1893) and No (R.1892) (“the latest amendments”).
The first significant amendment that has been implemented is the inclusion of “wet contractors” in the definition of a “user”. This amendment permits contractors who are contracted on a wet basis to also claim diesel refunds of their own.
In the draft amendments published in 2020 and 2021, it was proposed that the definition of “user” should 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 has not been implemented in the latest amendments.
The latest amendments require the user to create a diesel refund user registration profile electronically through the communication system indicated 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; and
- Assets that are powered by eligible purchases of the diesel refund user, together with the identifying features, make, model, and fuel tank capacity thereof, as well as the physical address of any such asset which is situated at a fixed geographical location.
Furthermore, the list of primary activities is now limited to the activities 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 the performance of predominantly qualifying activities have also been amended. It is important to note that in terms of the latest amendments, when such equipment and vehicles are directly powered by diesel, a detailed usage logbook is not required in respect of the usage of such vehicles. In such instances, the user is only required to substantiate the receipt of the diesel and the dispensing thereof.
However, to the extent that the user performs more than one category of primary activities or any non-qualifying activities, 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 activities and non-qualifying activities.
This amendment provides welcome clarity on logbook requirements and relaxes the onerous burden on users, especially in instances where their vehicles and machinery are predominantly used for primary activities.
The effective date of the 2022 Amendments is still to be determined.
Users should take cognisance of the new amendments so that they adhere to the new requirements and do not jeopardise their refund claims. They should consult with their tax advisors to avoid unnecessary assessments, together with penalties and interest being raised by SARS.
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