Budget 2023 included a proposal to extend the diesel refund to manufacturers of foodstuffs for two years, to limit the impact of power cuts on food prices.
Read: Diesel levy refund extended to take the pressure off food prices
On 10 March, the South African Revenue Service (Sars) published the draft provisions to give effect to the proposal, together with the draft registration forms to be submitted to claim the refund.
Those whose expectations were raised by the announcement in the Budget might be disappointed now that the draft amendments have been published.
Tax experts at PwC have pointed out that the definitions of “foodstuffs” and “manufacturer” in the draft amendments may make it difficult for food manufacturers to qualify for the proposed refund. Furthermore, the definition of “manufacturing premises” will exclude entities – typically small and medium-sized businesses – that manufacture and sell foodstuffs in the same building.
In addition, manufacturers that want to claim the refund must register with Sars and keep extensive records.
Stakeholders have until Friday, 24 March, to comment on the proposed amendments, which will be inserted in Part 3 of Schedule 6 to the Customs and Excise Act.
Only 80% of the RAF levy
The diesel refund system was implemented in 2000 to provide full or partial relief for the general fuel levy and the Road Accident Fund (RAF) levy to entities operating in the primary sectors of the economy: farming, forestry, fishing, and mining. The Budget proposed to extend the diesel refund to manufacturers of foodstuffs for two years, from 1 April 2023 to 31 March 2025.
The Budget 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”.
It was generally expected that the refund would be available for the full RAF levy. However, PwC points out that the draft amendments allow for only an 80% refund of the RAF levy for diesel purchased for use in manufacturing foodstuffs. The refund does not extend to any portion of the general fuel levy.
Foodstuffs that are in and out
Food manufacturers that want to avail themselves of the refund should pay careful attention to how the two qualifying criteria – “foodstuffs” and “manufacturer” – have been defined.
The draft amendments define “foodstuffs” as “products and preparations for human consumption, classifiable in chapters 2 to 21 of Part 1 to Schedule No. 1, but excludes the following:
- Any beverages of Chapter 22 or products and preparations for making beverages of Chapter 22;
- Goods of chapters 5, 6, 13 and 14.”
Chapters 2 to 21 include a wide range of food products, such as live animals, processed meats, dairy products, nuts, flour, cereals, and confectionary, PwC said.
The tax experts said it is equally important to pay attention to the excluded items. For example, sausages are included, but sausage casings in Chapter 5 are excluded, and foods preserved in vinegar are included, but vinegar itself is excluded because it falls under Chapter 22 (“Beverages, spirits and vinegar”).
Click here to download Part 1 of Schedule 1 to the Customs and Excise Act.
‘Manufacturing’ and ‘manufacturing premises’
In terms of the draft amendments, “manufacture” has the meaning assigned in section 1(1) of the Customs and Excise Act, “with any necessary changes as the context may require for the manufacture of foodstuffs by the refund user at the manufacturing premises, including distillate fuel used for own electricity generation in such manufacture”.
“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,” PwC said.
The draft amendments define “manufacturing premises” as “an industrial facility for the manufacture of foodstuffs and excludes any premises at which wholesale distribution or retail sales activities occur”.
The implication of the “manufacturing premises” definition is that an artisanal bakery, for example, that bakes and sells bread in the same building will not qualify for the refund.
Another reason small businesses may not qualify is how the draft amendments define “electricity generation”: the diesel generator must be “stationary” and “fixed”, whereas “mobile portable electric power generators” are explicitly excluded.
PwC notes that manufacturers of foodstuffs may also conduct other operations that do not qualify as foodstuff manufacturing at the same premises and use the diesel to generate electricity to conduct all these activities (including qualifying manufacturing activities) simultaneously. “It is not clear how the diesel usage (and concomitant refund) should be determined in these scenarios.”
Users must register
To claim the refund, the taxpayer and the manufacturing premises will have to register with Sars.
Application for registration must be made on form DA 185 and annexure DA 185.4A3 obtained from a Sars office or the Sars website, www.sars.gov.za.
Every application for registration that is approved will be issued with effect from 1 April 2023 as the date on which the user became eligible for claiming a refund.
In addition, a user must be registered as a VAT vendor in terms of the Value Added Tax Act.
A claim for a refund must be submitted on the prescribed form (form DA 66), together with all necessary supporting documents.
PwC said the draft amendments do not clarify the following:
- Whether the refund user registration process will be manual or electronic;
- Whether the DA 66 form must be submitted manually or electronically; and
- The intervals at which refund claims must be submitted.
‘Onerous’ record-keeping
PwC said the draft amendments prescribe “onerous” record-keeping requirements.
These requirements include the following:
- The refund user must keep a record of each manufacturing or other operation or process performed at the manufacturing premises, including the manufacturing method or elements and ratio of diesel used in relation to the manufacture of foodstuffs.
- Records, books, accounts, or other documents (including purchase invoices, sales invoices, storage logbooks and usage logbooks) that show, in respect of each refund claim, how the quantity of diesel on which a refund was claimed was calculated.
- All records, books, accounts, or other documents used to substantiate the refund claim must be kept for five years from the date of use, disposal or loss of the diesel fuel or the refund claim, whichever occurs last.
The draft amendments detail the nature of the records that must be kept in respect of the receipt, storage, removal, disposal, or loss of diesel fuel, as well as how the fuel was used in each manufacturing activity.
Documents to download
Click here to download the draft amendments to Part 3 of Schedule 6 to the Customs and Excise Act.
Click here to download the draft registration application form.
Click here to download the draft rebate claim form.
Comments must be submitted on this template by 24 March.
