The latest amendments to the extension of the diesel refund scheme to food manufacturers were published on 19 April 2023. The initial proposed amendments were published on 10 March 2023.
The latest proposed amendments provide some clarity regarding the following:
- Definition of “foodstuffs”:
It is proposed that “foodstuffs” means products and preparations for human consumption. Therefore, products for animal consumption are not included.
- Definition of manufacture:
The proposed definition of manufacture “includes, but is not limited to the following activities”:
- Slaughtering of animals in an abattoir;
- mixing, forming or producing foodstuffs;
- processing, converting or extracting foodstuffs;
- handling, storing or preserving foodstuffs;
- conveying or transferring foodstuffs;
- packing or measuring off foodstuffs;
- electricity generation for such manufacture.
Although it is stated that the list of qualifying activities is not an exhaustive list, we should be mindful of what the Supreme Court of Appeal said in SARS v Glencore Operations (Pty) Ltd (Case no 462/2020) [2021] ZASCA 111 (10 August 2021) (“Glencore case”). The Supreme Court of Appeal held that the list of qualifying primary activities for primary production was an exhaustive list.
It further stated that “A non-exhaustive list would lead to unbusinesslike or insensible result. 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”.
It is also proposed that activities specified in Note 6 which are eligible for a refund contemplated in item 670.04 are excluded. These are primary activities in primary production such as agriculture, mining, forestry, and fishing.
- Manufacturing premises
The diesel refund is limited to diesel used at the manufacturing premises where the industrial operations for the manufacture of foodstuffs are performed. Excluded from the definition is business premises at which:
- the publicly accessible portion of the trading area for wholesale or retail sales outlet activities comprises more than 10 per cent of the total floor surface of the business premises;
- only the wholesale or retail distribution or sales of goods occur.
It is proposed that the application for registration of the manufacturing premises must be accompanied by a detailed scale floor plan of all buildings on the premises which indicates the purpose and use of all areas therein.
- Record keeping requirements:
In addition to retaining storage and usage logbooks etc., it is proposed that the user keeps record of each manufacturing or other operation or process performed at the manufacturing premises, including:
- area of the manufacturing premises where the activity occurs;
- method or elements of the activity and step thereof in the process flow;
- ratio of distillate fuel used for the activity relative to overall distillate fuel usage
Comments on the latest proposed amendments are due for submission on or before 3 May 2023.
The latest amendments can be accessed on SARS’ website at https://www.sars.gov.za/wp-content/uploads/Legal/Drafts/Legal-LPrep-Draft-2023-16-Draft-Amendment-to-Schedule-6-Part-3-Foodstuffs-19-April-2023.pdf
Please see our comments on the initial proposed draft amendments at https://www.bdo.co.za/en-za/insights/2023/tax/diesel-refunds-not-an-easy-road-for-foodstuffs-manufacturers