Customs and Excise Act No. 91 of 1964
Value-Added Tax Act, No. 89 of 1991
Diesel Rebate Forms VAT101D and VAT102D
In this article, we will discuss the basics of the Diesel Rebate System. In future articles, example calculations will be provided for some industries.
What is the diesel rebate system?
The diesel rebate is a refund of the General Fuel Levy and Road Accident Fund Levy for eligible users.
It is a rebate governed by the Customs and Excise Act, although the actual refunds are administered through the VAT system.
Qualifying entities that carry on eligible activities in the categories and industries listed below and registered for VAT purposes (under the Value-Added Tax Act, No. 89 of 1991), may apply for registration for the diesel refund by completing a VAT101D (Application for registration of diesel refund). For branches of the qualifying entity a VAT102D must be completed.
Commercial Fishing Vessels
Vessels owned by the NSRI
Marine Industry Research Vessels
Coastal Patrol Vessels
Fibre-Optic Telecommunication Service Vessels
Harbour Vessels operated by Portnet and used by in-port bunker barge operators
Locomotives used for rail freight
Electricity Generation Plants with a generation capacity exceeding 200 Megawatt per plant
Before applying for registration, entities must establish whether they qualify by consulting Note 6 of Part 3 of Schedule No. 6 to the Customs and Excise Act, Act No. 91 of 1964.
The nature of the refund
The Customs and Excise Act classifies diesel rebates as PROVISIONAL PAYMENTS that may be recovered in the case of non-compliance with the requirements of the Customs and Excise Act.
The Customs and Excise Act has very specific operational and documentary compliance requirements to ensure that rebates are only claimed on eligible purchases of diesel.
The Customs and Excise Act allows SARS to reclaim any diesel rebate within a period of 2 years from the date that the refund was originally made. The 2-year rule does not apply where the application of the refund contained a false declaration.
In a recent High Court Case (Graspan Colliery SA (Pty) Ltd v CSARS (Case No. 8420/18), the court held that where an erroneous claim was made, the claim constitutes a false declaration as contemplated in the Customs and Excise Act. The 2-year rule therefore does not apply to incorrect claims. This means that SARS can go back as far as they wish to recover incorrect historical claims even if it resulted from a bona fide error.
What must be done to ensure compliance with the Act?
The most critical issue is to ensure that DETAILED LOG BOOKS are maintained of all diesel purchased and issued to eligible machinery conducting eligible activities. The fact that a person only conducts eligible activities is irrelevant; the logbooks must be maintained.
Diesel refunds are claimed on the VAT 201 form by inserting the following fields:
Diesel refund claims must be supported by logbooks which indicate a full audit trail of diesel fuel for which refunds are claimed, from purchase to use thereof.
In order to comply with the above mentioned requirements, two (2) types of logbooks are recommended by legislation, alternatively, they can be combined into one document.
These two logbooks are as follows:
Diesel storage facility (Tanks, bowsers, cassettes etc.) logbook
Diesel usage logbook
Requirements for a compliant diesel refund claims usage logbook per equipment
The following data fields are required for a compliant logbook:
Opening and closing date.
Monthly opening litres of diesel in equipment.
Litres received from storage (Date, Storage detail and Quantity).
Equipment detail (Type, Identification number, Opening km/hours, Closing km/hours and Total km/hours).
Monthly closing litres of diesel in equipment.
Purpose – Activity performed – Date, Where, Specific eligible activity performed, Eligible litres, Non-eligible activity performed and Non-eligible litres
Particulars of Operator
Example logbooks can be found on the SARS website.
Diesel purchases must be delivered at the premises of the eligible user and issued from there to the eligible machinery.
Full tax invoices must be obtained for all purchases of diesel in excess of R500. Where sub-contractors are used to conduct eligible activities on behalf of the person claiming the diesel refunds, diesel rebates may only be claimed if the sub-contractors contract on a dry basis (i.e. the claimant issues the diesel to the sub-contractor).
The South African Revenue Services (SARS) administers diesel refunds through the Value Added Tax (VAT) process. 80% of diesel consumption qualifies for SARS refunds in terms of rebate item 670.04 of Schedule 6 to the Customs and Excise Act, Act No. 91 of 1964 (the Act).
Depending on the industry, the rebate provides full or partial relief from the fuel levy and the Road Accident Fund levy. Agriculture receives about 40% relief from the fuel levy and 100% from the Road Accident Fund levy. A farmer qualifies for 80% of his lawful use (i.e. 80% of the qualifying litres).
The current diesel refund levy effective 1 April 2020 amounts to R3.49 per litre of 80% of Eligible Purchases and Eligible Usage.
SARS Policy Notes
This policy applies to Diesel Refund Registrants claiming a refund in terms of Rebate Item 670.04 of Schedule 6 to the Customs and Excise Act, Act No. 91 of 1964.
The general fuel levy increased by 16.0c per litre and the Road Accident Fund (RAF) levy by 9.0c per litre respectively, with effect from 01 April 2020, as follows:
General Fuel levy = Increases from 339.0 c/l to 355.0 c/l; and
RAF levy = Increases from 198.0 c/l to 207.0 c/l.
The diesel refund in respect of on-land primary sector beneficiaries is 40% of the general fuel levy of 355.0 c/l, which equals 142.0 c/l of the qualifying 80% of diesel consumption.
As from 1 April 2016, the diesel refund levy on the generation of electricity by Eskom’s open cycle gas turbines was reduced to 50% of the general fuel levy.
Where the implementation date of the new rates for RAF levy and fuel levy falls within the tax period, a factor has been determined, on which a vendor must recalculate total non-eligible and eligible litres to
determine the correct litres to be entered on the VAT 201 return.
The prescribed factor per usage type is as follows:
On Land 0.95587
Electricity Generation Plants 0.95578
Rail & Harbour Services 0.95652
As two levy values changed on 01 April 2020, the VAT vendor must recalculate total non-eligible and eligible litres purchased up to and on 31 March 2020, by using the factor (shown above) to reduce these litres to enable them to use the new rate when calculating the diesel refund.
Note: Diesel refunds cannot be claimed against the carbon fuel levy, but will only be allowed against the general fuel levy component of the fuel levy.
SARS may audit your claims for up to 5 years after they have been submitted. If larger refunds were claimed than what was entitled the following penalties may apply:
INTEREST – The official rate of interest per month or part of a month.
FORFEITURE – Once the value of total litres overstated.
SUSPENSION – Suspension from the system
It may happen that SARS issue you with a letter of demand for information related to rebate claims and audits. Do not delay responding to this letter of demand. You have 30 working days to appeal, if necessary.
For more information, refer to the SARS Policy titled “Manage Diesel Refund Calculations” and specifically the 01 April 2020 effective date edition at the time of writing this article.
Author Craig Tonkin