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By Alison van Den Berg & Seelan Muthayan*
National Treasury and SARS recently published a discussion paper for public comment which sets out proposed options for an improved Diesel Fuel Refund Tax System.
The paper reviews the current diesel refund system and highlights policy pitfalls, administrative complexities and makes recommendations to simplify and align it to the original policy intention. National Treasury acknowledges the following challenges in the current system:
- It’s administration is done through the VAT system which could exclude some potential beneficiaries;
- The authorisation of primary production activities and the disqualification of legitimate diesel users on “technical grounds”;
- The outsourcing of operations and concomitant benefit asymmetry between primary producers and contractors; and
- The misconstruction of the role of logbook verification to calculate refunds and claiming them.
Proposed reforms include:
- Interim diesel refund amendments – in effect from 1 April 2016;
- Shifting the emphasis from qualifying users to qualifying activities;
- Including contractors to encourage smaller producers and new entrants;
- Creating a standalone diesel refund administration – outside of the VAT system;
- Refining enforcement in terms of audits and taxpayer compliance through introducing sector-specific logbooks.
Going forward it is proposed that beneficiaries will be required to update and maintain their diesel refund registration profiles electronically to validate their claims. In addition, refunds may 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. Furthermore, claimants will be obliged to maintain proper service and repair records for such machinery and vehicles to prevent ghost claims. The need to link the qualifying activities to a physical location is identified.
The paper also deals with negative externalities associated with diesel use, and proposes adding “an explicit greenhouse gas emissions element to the fuel tax regime to address concerns about climate change”.
It seems that existing beneficiaries (e.g. in the mining and farming industries) could expect increasing compliance requirements and decreasing benefits.
- Alison van Den Berg is Senior Tax Manager at BDO South Africa.Â
