The National Treasury’s fuel tax rebate for food makers is proving to be quite difficult – and not as wide as first anticipated.
Finance Minister Enoch Godongwana indicated during his 2023 Budget Address that, due to the prolonged energy crisis and the catastrophic impact of load shedding on South African enterprises, exemptions afforded to some firms for the purchase of fuel will be extended to food makers.
The South African Revenue Service (SARS) released the draught rules to give effect to the plan, as well as the draught registration forms to be filed in order to claim the refund, for public comment on March 10, 2023.
PwC tax specialists analysed and dug through the proposed adjustments, emphasising certain limitations in the relief available.
The following are some general caveats:
It has long been maintained that diesel used by enterprises to minimise load shedding should be excluded from paying at least the Road Accident Fund (RAF) Levy, given its usage in this context has nothing to do with being on the road.
According to PwC, the diesel reimbursement system was created in 2000 to offer primary industries, such as farming, forestry, fishing, and mining, with full or partial relief from the general fuel charge and the road accident fund levy.
To alleviate the impact of load shedding on food costs, Treasury now wants to extend this rebate to food producers who buy and use distillate fuel to lessen the impact of load shedding.
It said that this will be in force for two years, from 1 April 2023 to 31 March 2025.
Industries who stand to gain from the return have mostly applauded the idea, since they have been spending millions of rands on fuel for their generators, increasing the cost of doing business and, in turn, increasing the price of food provided to customers.
Other food-related companies, such as merchants that store, stock, refrigerate, and sell items to customers, have not been exempted and will continue to pay millions of rands each month with no respite.
Contrary to popular belief, food makers will not receive complete relief; the reimbursement will be just 80% of the Road Accident Fund charge.
The RAF levy is now R2.18 per litre of 95 fuel. This will retain the current rate, with no increases taking effect in 2023. Even with the return, food makers will still be required to pay 44 cents per litre in tax.
“Budget 2023 simply stated that ‘a similar refund on the RAF levy for diesel used in the manufacturing process – such as for generators – will be extended to the manufacturers of foodstuffs’,” PwC noted.
“The general expectation was that the refund would be available for the full RAF levy; however, the draft amendments only allow for an 80% refund of the RAF levy. No relief is proposed for the general fuel levy,” it said.
It also looks that the return procedure would be hindered by red tape and administration, as PwC stated appears to be onerous.
“The draft provisions detail the requirements in respect of the application for registration and claiming of the refund, as well as onerous record-keeping requirements.”
“It is not clear whether the refund user registration process will be manual or electronic. Although the refund user must be registered for VAT, the diesel refund claim will be by way of submitting a DA66 form – and it is unclear as to whether the DA66 form will need to be submitted manually or electronically, as well as the intervals for submitting the refund claims,” the group said.
In another way, the alleviation is restricting.
The fuel must be utilised in stationary fixed electric power generators, according to the proposed requirements. They specifically omit mobile portable electric power generators and refer to a “storage tank” and the associated record keeping.
According to PwC, there are also unanswered uncertainties concerning how the return may affect other activities of the same company on the same premises.
“In practice, manufacturers of foodstuffs may also carry on other operations – i.e. not qualifying as foodstuff manufacturing – at the same premises and use the diesel to generate electricity to carry on all of these activities simultaneously. It is not clear how the diesel usage and concomitant refund should be determined in these scenarios.”
The definitions of foodstuff and producer may be somewhat confusing when it comes to the enterprises that really qualify for the exemption. While PwC acknowledged that the draught laws’ definitions are relatively clear, they are muddled by exclusions.
Qualifying foodstuffs, for example, cover a wide range of food products, including live animals, processed meats, dairy products, nuts, wheat, cereals, and confectionary.
Therefore, while sausages are permitted, sausage casings are not. Vinegar-preserved foods are also listed, although vinegar itself is not.
“The refund user will have to evaluate the manufacturing process and any constituents thereof to determine whether the activities would qualify as the ‘manufacturing’ of ‘foodstuff’ under the respective chapters,” the tax experts said.
According to PwC, concerned taxpayers must first determine if they qualify for the refund at all, and if they do, they must prepare to navigate the systems and processes required to take advantage of it.
Comments on the proposed provisions and supporting draught forms are submitted on or by March 24, 2023.
