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Diesel Rebates & SARS (pg 11)

Diesel Rebates & SARS

>> Gary McLean (Charteris & Barnes)

It is a well-known fact that, included in the fuel charges, there are certain levies, for example, a levy for the Road Accident Fund which will be used to help victims of road accidents. Some sectors, however, do not use the road network of South Africa, but do use a substantial volume of diesel to perform their activities. In order to encourage and enable primary production in the Republic, a refund is offered on the fuel and Road Accident Fund (RAF) levies charged on diesel and biodiesel used in such production. The diesel refund system provides a refund on the fuel and Road Accident Fund (RAF) levies paid on diesel by qualifying industries in the following categories: on land; offshore; rail; harbour vessels; and electricity generation plants.

The diesel rebate system is currently governed through the Customs and Excise Act, although it is administered by SARS through the Value-Added-Tax system. Currently, SARS is looking into ways to improve the administration of the diesel rebate system as the diesel rebate does not have any actual bearing on the VAT system (not part of the VAT Act), but the cash flow effect of claiming a diesel rebate is reflected in the VAT system and claims should therefore be verified.

It should be noted that VAT returns on which diesel rebates are claimed should be submitted by the 25th of the month, even if the return is submitted and paid via E-Filing. Any enterprise carrying on eligible activities that are registered for VAT purposes, either compulsory or voluntary, may apply for diesel refund registration by completing the appropriate application form, VAT 101D – Application for registration of diesel / biodiesel refund.

If a person registered for VAT becomes aware that they are entitled to register for the diesel refund system, they may apply for registration with retrospective effect of up to two years preceding the date of diesel registration application and may claim back diesel refunds for the preceding two year period on condition that they comply with the conditions for the claiming of a diesel refund (burden of proof and qualifying activities). The on-land sectors which will qualify for a refund include mining, forestry and farming.

Own primary production activities in farming mean the production of farming products, by the vendor, for gain on a farming property and the vendor will be eligible for the diesel refund in respect of those activities. There is a complete list of the primary activities available in the SARS Reference Guide for Diesel/Biodiesel refund – available on the SARS Home page.

Some of the activities included are the growing of crops, harvesting and storing of crops on the farming property, the breeding and caring for animals and reptiles, the rounding up or herding of livestock, any activity undertaken for the purpose of soil or water conservation, etc.

It is important to note that no refund may be claimed in respect of any transport on a wet basis. There are certain activities which are specifically excluded from the claiming of the rebate, for example, where the nature of the product is to be changed so that it is no longer considered to be an agricultural activity, such as the processing of grapes into wine. The refund is only claimable if diesel is given on dry basis and not on wet basis. This means that the farmer must supply diesel to a contractor if the contractor does, for example, the harvesting or transport for the farmer. If the contractor buys the diesel and then bills the farmer for diesel and harvesting costs or transportation costs, the farmer cannot claim the refund on diesel by the contractor. It is important to note that the rebate should be claimed on the usage, and not on the purchase, of diesel. Therefore, it is of extreme importance that both a diesel storage logbook and a diesel usage logbook is kept to determine how much of the diesel received or purchased was used for primary farming operations. The diesel usage logbook should indicate how many litres are received from storage by which vehicle or machine and the purpose for which it was used. If this documentation is not available upon request, SARS will make an adjustment and penalties and interest may be charged. A logbook should be kept for each bulk tank of diesel (diesel storage logbook), as well as a separate logbook for each vehicle or engine that uses or receives diesel from the bulk storage tanks (diesel usage logbook).

Interpretation of legislation may even go so far as to require that separate logbooks are kept per farming activity. Each tank must have a logbook in which the details of any diesel drained from the tank is recorded. This includes the date, vehicle details and the volume of diesel. Details regarding purchases of diesel should also be recorded and should include the invoice date and invoice number, total litres purchased, supplier’s name and address and the date of delivery. All documents to substantiate the refund claim must be kept for a period of five years from the date of use or disposal of the diesel or biodiesel or the refund return, whichever occurs last.