Diesel Refunds: The Forgotten Primary Producer
Diesel Refunds: The Forgotten Primary Producer
There was a collective sigh of relief on 21 February 2024 as the Minister of Finance announced that there will be no increase to the general fuel levy for 2024/25. However, the Minister seems to have forgotten about a certain group of taxpayers – primary activity users, says Kagiso Nonyane, Senior Manager Indirect Tax at BDO. Here, she shares her insights on the distillate fuel refund system (the diesel refund scheme), whether it has the impact that was intended, and the impact being felt by primary producers as they continue to wait for further dispensation that was promised by government, but has yet to materialise.
Government implemented the diesel refund scheme in an attempt to support primary production in certain primary activities such as agriculture, mining, forestry, and fishing. The diesel refund scheme did not extend to secondary activities such as the processing of goods or manufacturing.
Over the past nine years, there have been various discussions between SARS, the National Treasury, and stakeholders from various industries regarding the reform of the diesel refund system.
In 2023, the scheme was extended to manufacturers of food products, with the extension being granted for a limited period, from 1 April 2023 to 31 March 2025.
While all of the above is excellent news, the process of keeping storage and usage logbooks is extremely arduous. Additionally, the time limit for food manufacturers is so short that many producers and manufacturers from all sectors simply aren’t prepared to jump through the multiple administrative requirements needed to effectively make use of the dispensation. This therefore defeats the purpose of extending the scheme.
Getting lost in the minutia – an ongoing battle for primary producers
The diesel refund scheme is governed by section 75 of the Customs & Excise Act but administered through the Value Added-Tax (VAT) system. Schedule No 6, Part 3, Note 6 of the Customs and Excise Act (Schedule 6) prescribes the requirements of the system. The main requirement when claiming the diesel refund is that the user must have purchased the diesel for use in their “own primary production activities” in that specific industry.
On 18 March 2022, the Deputy Minister of Finance published amendments under Government Gazettes No. 45056 (R.1892) and No (R.1893). These amendments were meant to address the various issues that primary activity users faced with the requirements contained in Schedule 6.
Some significant amendments were the relaxation of the burden on users of keeping storage and usage logbooks.
The lists of equipment and vehicles regarded as dedicated to the performance of predominantly qualifying activities were amended. 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. The user would only be required to substantiate the receipt of the diesel and the dispensing thereof.
It was stated that the effective date of the amendments was going to be determined.
Unfortunately, to date, there has been no progress regarding the effective date. The concerning issue is that users in the primary sectors are in constant disputes with SARS regarding the requirements of the current legislation, resulting in lengthy and expensive court battles.
One wonders whether there will ever be progress. The announcement to review the diesel refund administration to address anomalies was made in the 2015 budget speech. One would have hoped that by now progress would have been made and the weighty administrative requirements would be a thing of the past.
A shift in focus with an unrealistic time limit
The focus seems to have shifted to foodstuff manufacturers in 2023 with the extension of the diesel refund scheme. However, as claiming for dispensation would require these manufacturers to spend a fortune to ensure their premises are adequately set up to clearly prove the quantity of diesel used for activities such as manufacturing, packaging, and distribution, most stakeholders have expressed little to no interest. Essentially, claiming is a very costly exercise for a dispensation that is only in place for two years (1 April 2023 to 31 March 2025).
Would it not perhaps have been more prudent for the Minister of Finance, in his budget speech earlier this year, to have extended this period? The energy crisis is still an issue, loadshedding is not a thing of the past and will probably be an issue for a few more years to come, and the global recession and increased food prices remains ongoing. There certainly seems to be no end in sight for the challenges that these manufacturers have to face.
While relief is always welcome, any measures that are rejected by the very people that put them in place to give relief to should be reassessed. If the government is truly trying to find ways to bolster support for the production and manufacturing sectors to promote sustainability and long term economic growth, why is the burden of claiming dispensation so incredibly difficult and short-sighted?
Foodstuff manufacturers who still wish to register as users can still do so. Approved registration applications have been effective since 1 April 2023 as the date that users became eligible for claiming refunds. Just as with the current primary production dispensation, the requirements are onerous. Therefore, it is important to consult with a tax advisor to in order to determine whether you would be eligible, and what documentation must be obtained and retained to prove the eligibility of refund claims.
Government implemented the diesel refund scheme in an attempt to support primary production in certain primary activities such as agriculture, mining, forestry, and fishing. The diesel refund scheme did not extend to secondary activities such as the processing of goods or manufacturing.
Over the past nine years, there have been various discussions between SARS, the National Treasury, and stakeholders from various industries regarding the reform of the diesel refund system.
In 2023, the scheme was extended to manufacturers of food products, with the extension being granted for a limited period, from 1 April 2023 to 31 March 2025.
While all of the above is excellent news, the process of keeping storage and usage logbooks is extremely arduous. Additionally, the time limit for food manufacturers is so short that many producers and manufacturers from all sectors simply aren’t prepared to jump through the multiple administrative requirements needed to effectively make use of the dispensation. This therefore defeats the purpose of extending the scheme.
Getting lost in the minutia – an ongoing battle for primary producers
The diesel refund scheme is governed by section 75 of the Customs & Excise Act but administered through the Value Added-Tax (VAT) system. Schedule No 6, Part 3, Note 6 of the Customs and Excise Act (Schedule 6) prescribes the requirements of the system. The main requirement when claiming the diesel refund is that the user must have purchased the diesel for use in their “own primary production activities” in that specific industry.
On 18 March 2022, the Deputy Minister of Finance published amendments under Government Gazettes No. 45056 (R.1892) and No (R.1893). These amendments were meant to address the various issues that primary activity users faced with the requirements contained in Schedule 6.
Some significant amendments were the relaxation of the burden on users of keeping storage and usage logbooks.
The lists of equipment and vehicles regarded as dedicated to the performance of predominantly qualifying activities were amended. 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. The user would only be required to substantiate the receipt of the diesel and the dispensing thereof.
It was stated that the effective date of the amendments was going to be determined.
Unfortunately, to date, there has been no progress regarding the effective date. The concerning issue is that users in the primary sectors are in constant disputes with SARS regarding the requirements of the current legislation, resulting in lengthy and expensive court battles.
One wonders whether there will ever be progress. The announcement to review the diesel refund administration to address anomalies was made in the 2015 budget speech. One would have hoped that by now progress would have been made and the weighty administrative requirements would be a thing of the past.
A shift in focus with an unrealistic time limit
The focus seems to have shifted to foodstuff manufacturers in 2023 with the extension of the diesel refund scheme. However, as claiming for dispensation would require these manufacturers to spend a fortune to ensure their premises are adequately set up to clearly prove the quantity of diesel used for activities such as manufacturing, packaging, and distribution, most stakeholders have expressed little to no interest. Essentially, claiming is a very costly exercise for a dispensation that is only in place for two years (1 April 2023 to 31 March 2025).
Would it not perhaps have been more prudent for the Minister of Finance, in his budget speech earlier this year, to have extended this period? The energy crisis is still an issue, loadshedding is not a thing of the past and will probably be an issue for a few more years to come, and the global recession and increased food prices remains ongoing. There certainly seems to be no end in sight for the challenges that these manufacturers have to face.
While relief is always welcome, any measures that are rejected by the very people that put them in place to give relief to should be reassessed. If the government is truly trying to find ways to bolster support for the production and manufacturing sectors to promote sustainability and long term economic growth, why is the burden of claiming dispensation so incredibly difficult and short-sighted?
Foodstuff manufacturers who still wish to register as users can still do so. Approved registration applications have been effective since 1 April 2023 as the date that users became eligible for claiming refunds. Just as with the current primary production dispensation, the requirements are onerous. Therefore, it is important to consult with a tax advisor to in order to determine whether you would be eligible, and what documentation must be obtained and retained to prove the eligibility of refund claims.