South Africa Consults On Diesel Fuel Tax Refund Overhaul
Thursday, February 16, 2017
The South African National Treasury has issued a discussion paper on a new
diesel tax refund system, reviewing its administration and addressing anomalies
related to its qualifying activities and beneficiaries.
South Africa's existing diesel refund system provides full or partial relief
for the fuel levy (FL) and Road Accident Fund (RAF) levy to primary producers
in the agriculture, forestry, fishing, and mining sectors. It was introduced
from 2000 and is aimed at protecting the international competitiveness of local
industries and reducing the road-related tax burden of the RAF levy for certain
Diesel refunds are claimed based on the fuel's use, with different settings for primary producers (on land), offshore activities (including commercial
fishing and offshore mining), rail freight, and peak power electricity generation
plants (with a capacity of more than 200 MW).
For example, primary producers on land (farming, forestry, and mining) qualify
for a refund amounting to 100 percent of the RAF levy and 40 percent of the
FL in respect of 80 percent of their eligible diesel fuel purchases. Rail freight
is refunded the RAF levy only. Full refunds of both the FL and RAF levy apply
to offshore activities and peak power electricity generation plants, although
the FL refund for electricity generation has been reduced to 50 percent since
April 1, 2016.
The discussion paper follows from announcements made in the 2015 Budget that
delinked diesel refunds from the country's value-added tax system and committed
the National Treasury and South African Revenue Service (SARS) to explore alternative,
more equitable rules and administrative procedures, following consultation with
It is recognized that the implementation of a new standalone diesel refund
administration will have to be phased in to ease the compliance burden on beneficiaries
and the administrative burden on SARS. The design of the proposed new system
is envisaged to be finalized by the end of 2017 after the public consultation, which is due to end on May 15. That will be followed by an announcement of the details in the 2018 Budget.
The paper noted that the current diesel refund system "has faced several
technical administrative and legal challenges, including some eligible firms
being unable to benefit from the system, while others appear to be making disproportionate
In that respect, as "the systemic problems confronting the current administration
of the diesel refund system are due to the emphasis on eligible diesel purchases
by qualifying users," it is proposed that "the basis of the diesel
refund administration be shifted to qualifying primary production activities."
An indicative list of the type and nature of qualifying activities and use
by primary producers is provided in the discussion paper, and is expected to
be finalized through the consultation process.
Audits by SARS under the proposed new diesel refund regime will be based on
the risk profiling of diesel refund beneficiaries, while enforcement will continue
to rely on taxpayer compliance with logbook obligations. Beneficiaries will
be expected to update and maintain their diesel refund registration profiles
electronically to validate their claims, while claims outside the scope of the
beneficiary's registration profile will be denied.
In addition, refunds will only be allowed in respect of diesel dispensed from
storage facilities formally on record with SARS to diesel-powered equipment
and vehicles, also formally on record with SARS. There will also be a link of
the qualifying activities to the physical location of the primary production