Subsequent to the announcement the Minister of Finance made in relation to extending the diesel refund to manufacturers of food products, the South African Revenue Services (SARS) published draft amendments to Schedule 6, Part 3 to the Customs and Excise Act,1964 (Customs Act) on its website on 10 March 2023 (Draft Amendments).
In terms of the Draft Amendments, the diesel refund is extended to manufacturers of “foodstuffs” from 1 April 2023 to 31 March 2025.
“Foodstuffs” is defined as “products and preparations for human consumption, classifiable in Chapters 2 to 21 of Part 1 to Schedule No. 1”. Included in Schedule 1 are the following products:
- Meat and edible meat offal;
- Coffee, tea and spices;
- Cereals;
- Animal and Vegetable Oils; and
- Sugars and Sugar Confectionery.
However, the following goods are specifically excluded from the definition of “foodstuffs”:
- any beverages of Chapter 22 or products and preparations for making beverages of Chapter 22; and
- goods of Chapters 5, 6, 13 and 14.
Beverages in Chapter 22 include beer made from malt, non-alcoholic beer, spirits, certain waters and vinegar.
It is important for users to carefully consider the relevant Chapters in Schedule 1 with all the relevant Notes thereto in order to determine whether the goods manufactured would qualify as “foodstuffs”.
The diesel refund relates to the diesel used in the manufacturing process of the qualifying foodstuffs and includes diesel used for the generation of electricity in the manufacturing process. In terms of section 1 of the Customs Act, manufacturing includes any process as may be prescribed in any Part of Schedule No. 1 wherein such duty or levy is specified.
Furthermore, the diesel refund is limited to diesel used at the manufacturing premises. The manufacturing premises is limited to the manufacturing facility where the foodstuffs are manufactured and excludes any premises at which wholesale distribution or retail sale activities occur. To this point, food retailers have already expressed their disappointment that the diesel refund was not extended to them as well.
In premises which contains both manufacturing, packaging and distribution activities, it will be very difficult for users to prove the quantity of diesel used for the respective activities. Users might have to put new systems in place which will enable them to determine such information. This might also be a very costly exercise.
The electricity must be generated from diesel used in stationary fixed electric power generators. Mobile portable electric power generators are excluded. We assume that mobile portable electronic generators were excluded on the basis that they can be easily moved from the registered manufacturing premises and can used for other non-qualifying processes other than manufacturing.
Similarly with the current diesel rebate regime which deals with diesel refunds in relation to primary activities of agriculture, mining etc, in order to be able to claim the diesel refund, the taxpayer must be registered for Value Added Tax (VAT) and as a “user” in terms of the Customs Act. We are uncertain why the VAT registration is specifically required as in terms of the current diesel refund regime for primary users, the diesel refund claim is incorporated in the VAT return as the diesel refund is administered through the VAT system. However, we note from the Draft Amendments that the diesel refund claims for food manufacturers must be submitted on a DA 66 form together with all necessary supporting documents relating to such claim.
It is therefore uncertain whether the refund will also be administered through the VAT system.
Successful registrations will be issued with effect from 1 April 2023 as the date on which the refund user became eligible for the claiming of refunds.
The user is required to keep records of each manufacturing or other operation or process performed at the manufacturing premises, including the manufacturing method or elements and ratio of distillate fuel used in relation to the manufacture of foodstuffs. Storage and usage logbooks as well as source documentation should be retained to substantiate the diesel refund applications. The manufacturing premises must also be registered.
The onerous requirements that stakeholders in primary production have been trying to get rid of seem to have found their way to manufacturers of foodstuffs. As an example, usage logbook entries must be substantiated by the source documentation and additional information that informed the completion of such logbooks, including information such as the serial number or identification marking of equipment, manufacturer specifications of equipment, distillate fuel or power usage rate of equipment, frequency, intensity and duration of use of equipment, any other incidents, facts and observations relevant to the measurement of distillate fuel usage. How users will be able to obtain some of the required information is uncertain.
Comments on the Draft Amendments are due for submission before 24 March 2023.