BUSINESS •
ARE DIESEL REFUNDS MORE GLUG-GLUG THAN CHING-CHING ?
By Evádne Bronkhorst , senior manager at Forvis Mazars in South Africa
In the Medium Term Budget Policy Statement 2024 published by the National Treasury on 30 October 2024 in South Africa , part of the weaker revenue outlook was attributed to a decrease in fuel levies . The National Treasury also noted that net fuel levy collections contracted by 3.9 % compared to the same period in 2023 / 24 . Despite this decline , it is projected that tax revenues from fuel levies will increase by 32.6 % by the 2027 / 28 period . 1
The consolidated budget deficit for the 2024 / 25 period is 5 % of GDP . 2 One of the mechanisms that can be used to decrease a deficit is to increase tax revenues or to decrease tax incentives , such as the quantum of diesel refunds paid .
A reduction in diesel refunds would also align with the South African government ’ s drive towards increasingly building a green economy . Since the Minerals Council Of South Africa is expecting an increase in the prices of distillate fuel , thereby increasing mining input costs , this may be detrimental to the future well-being of the mining sector . 3
Diesel refund scheme requirements The diesel refund scheme was introduced in 2000 to support primary sectors , such as the mining sector , to become globally competitive . This is achieved by granting full or partial relief for the general fuel levy and the Road Accident Fund ( RAF ) levy .
While the administration of diesel refunds is currently done through the value-added tax ( VAT ) system , Note 6 in Part 3 of Schedule No . 6 to the Customs and Excise Act No . 91 of 1964 ( the Act ) governs the diesel refund scheme . of use ( e . g . distance , duration , route , speed , rate ) and other incidents , facts and observations relevant to the measurement of eligible diesel use .
Challenges There has been a notable increase in diesel refund verifications and audits conducted by the South African Revenue Service ( SARS ) recently . The focus appears to be on whether or not the distillate fuel is being used for the diesel refund claimant ’ s own primary production activities , and whether or not logbooks comply with the requirements of Note 6 in Part 3 of Schedule No . 6 to the Act .
In Commissioner , South African Revenue Service v Glencore Operations SA ( Pty ) Ltd ( Case no 462 / 2020 ) [ 2021 ] ZASCA 111 ( 10 August 2021 ) ( the Glencore Case ), SARS disallowed diesel refunds claimed by Glencore , based on the contention that the distillate fuel was used in secondary mining activities . Secondary mining activities are generally those activities that take place after the mineral has been extracted , such as crushing and screening . Only those activities included in Note 6 ( f )( iii ) in Part 3 of Schedule No . 6 to the Act are regarded as primary mining activities .
The Supreme Court of Appeal found in favour of SARS , and noted that Glencore ’ s evidence regarding its mining processes was lacking and negatively impacted Glencore ’ s argument .
The scales may have tipped In February 2017 , the National Treasury published a discussion paper regarding the reform of the diesel refund scheme4 Affected sectors were hopeful that the discussion paper
On a high level , to qualify for the diesel refund scheme the mining entity should be registered for VAT and diesel refunds , and :
• Purchase distillate fuel for own use .
• Use the distillate fuel at the place where the mining operation is carried out .
• Be the holder of the mining license .
• Use the distillate fuel for own primary production activities .
• Be in possession of compliant tax invoices issued by diesel supplier .
• Systematically maintain separate Diesel Storage , Diesel Usage and Diesel Losses logbooks for each qualifying asset . The logbooks should reflect the journey of the distillate fuel from the point at which it was dispensed for use and details regarding the actual consumption of the distillate fuel . Consumption should be classified as consumption for eligible or non-eligible purposes .
• Be in possession of user source documentation and appropriate additional information that include manufacturer specifications of equipment , particulars of operator , intensity
About : Evádne Bronkhorst Bronkhorst is a senior manager : Tax at Forvis Mazars in South Africa . She provides corporate tax advisory services and is experienced in direct and indirect taxes . Her areas of specialisation include valueadded tax , mining taxes , M & A tax and employment tax incentives . She qualified as a Chartered Accountant in 2009 . Prior to joining Mazars South Africa , she
Evádne Bronkhorst , senior manager at Forvis Mazars in South Africa .
was a corporate tax specialist at Nubis . tax , an assistant manager : Audit Technical at Ernst & Young and a senior lecturer at the Department of Taxation at the University of Pretoria , where she lectured taxation at postgraduate level . Her qualifications include CA ( SA ); LLM ( International Revenue Administration ) ( AUS ); LLM ( International Customs Law and Administration ) ( AUS ); MCom with specialisation in Taxation ( RSA ).
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