In a move aimed at bolstering the local manufacturing sector which is currently under severe pressure further compounded by the Ukraine crisis, the South African Revenue Services (SARS) has provided much-needed clarity on the extension of the diesel refund scheme to manufacturers of foodstuffs.

Government implemented the diesel refund system in 2000, to provide full or partial relief for the general fuel levy and the RAF levy to primary sectors. The refund system is in place for the farming, forestry, fishing, and mining sectors. In light of the current electricity crisis, a similar refund on the RAF levy for diesel used in the manufacturing process (such as for generators) has been  extended to the manufacturers of foodstuffs. This has taken  effect from 1 April 2023, with refund payments taking place once the system is fully developed and will be in place for two years until 31 March 2025. This relief is implemented to limit the impact of power cuts on food prices.

NEW REFUNDS AND CHANGES IN THE SYSTEM FOR CLAIMING THESE REFUNDS

SARS will administer the new refund to the extent of 80% of the RAF levy for diesel purchased for use and used in the manufacturing of foodstuffs through the DA66 Excise Refund System. The currently manual DA66 process will be automated in the last quarter of 2023 and is separate from the diesel refund system that is administered through the VAT system by way of submitting VAT 201 returns.

Part 3 of Schedule No. 6 to the Customs and Excise Act is currently f being amended with the inclusion of new provisions in the Act and that all approved Refund Applications will be approved from 1 April 2023..

Under the revised guidelines,  manufacturers of ‘’foodstuffs’’ will now be eligible to claim refunds on diesel used in their production processes. To qualify for the refund, the manufacturer will have to prove to  SARS that it ‘’manufactures’’ foodstuffs in the ordinary course of business from a designated ‘’manufacturing premises’’ using a fixed (stationary) diesel generator in order to generate electricity – mobile generators are specifically excluded in the draft guideline.

By extending this benefit to manufacturers of foodstuffs, SARS acknowledges the crucial role played by the industry in job creation, food security, and overall economic development as well as the impact that loadshedding has had and continues to have on this sector.

CLARIFICATION PROVIDED BY SARS AFTER THE INITIAL ANNOUNCEMENT IN MARCH

• Persons that intend to participate in the new refund must apply to register as refund users, including their manufacturing premises.
• Every application for registration as refund user, which is approved for purposes of the new refund, will be issued with effect from 1 April 2023, as the date on which the refund user became eligible for claiming refunds.
• The relief is effective from 1 April 2023, but refund payments to registered refund users will commence on completion of the system for administration purposes.
• As the new refund is separate from the diesel refund scheme, refund applications must be done through the DA66 process and not the VAT return. This also applies to taxpayers that are currently registered as diesel refund users.

APPLICATION FOR REGISTRATION AND CLAIMING OF REFUNDS

• Manufacturers that purchase and use diesel  must apply for registration as a refund user and also register each of its manufacturing premises using form DA185 and annexure DA 185.4A3
• Manufacturers must be registered Vendors for Value-Added Taxation (VAT)
• Refund claims will be submitted using form DA 66 along with necessary schedules and documents as specified , eg storage and usage logbooks, diesel purchase tax invoices
• Where multiple pieces of equipment are powered using the fixed generator and some of the equipment so powered is not used in the process of manufacture, proof must be kept of the apportionment ratio utilised and monitored.

The announcement by SARS has been met with widespread appreciation from industry leaders and business owners involved in food production. Many view it as a significant step towards supporting the sector's growth and fostering a favourable business environment. The clarity provided by SARS on the extension of the diesel refund to manufacturers of foodstuffs is expected to enhance confidence and encourage further investment in the industry whilst at the same time reducing food inflation on the most vulnerable people in our society.

Please note that the above is for information purposes only and does not constitute tax/financial advice. As everyone’s personal circumstances vary, we recommend they seek advice on the matter. While every effort is made to ensure accuracy, Nexia SAB&T does not accept responsibility for any inaccuracies or errors contained herein.

 

Article prepared by: Stefan Diederiks CA(SA)

Entrepreneurial Business Services Director, Registered Tax Practitioner

For any queries or further information, please contact:

• Hassen Kajie

Entrepreneurial Business Services Director

M: (+27) 82 333 3389 | E: hassen@nexia-sabt.co.za 

• Yousuf Hassen

Entrepreneurial Business Services Director

M: (+27) 82 333 3376 | E: yhassen@nexia-sabt.co.za

Source: The South African Revenue Services

www.sars.gov.za