The South African Revenue Service (Sars) has published the final provisions to the Customs and Excise Act on the diesel refund system for manufacturers of foodstuffs.
This year’s Budget included a proposal to extend the diesel refund to manufacturers of foodstuffs for two years, to limit the impact of electricity blackouts on food prices.
The draft provisions were published in March. At the time, tax experts at PwC said several of the draft proposals would not make it easy for food manufacturers to qualify for the refund.
The final provisions come more than two months since comments were due on the second version of the draft provisions. Comments in respect of the second version provisions were initially due on 19 April, and the deadline was subsequently revised to 3 May.
The final amendments to Part 3 of Schedule 6 to the Customs and Excise Act were published in the Government Gazette on 14 July.
The publication of the final provisions is welcomed, as it will provide taxpayers with sought-after certainty regarding the requirements to qualify for the refund, PwC said in a Tax Alert.
The final provisions contain a number of changes from the last published version of the draft provisions. The most notable are changes to the definition of “foodstuffs”, as well as the requirements for applying for registration and claiming refunds, PwC said.
There have been no changes to the extent of the refund, which remains 80% of the Road Accident Fund levy. The period in which the scheme shall apply remains from 1 April 2023 up to and including 31 March 2025.
Definition of ‘foodstuffs’
The draft provisions defined “foodstuffs” as “products and preparations for human consumption, classifiable in chapters 2 to 21 of Part 1 to Schedule No. 1, but excluding 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.
The final provisions have revised the definition by removing the exclusion of any beverages of Chapter 22.
However, PwC said the exclusion of products and preparations for making beverages classifiable as “sugary beverages” (section A of Part 7 to Schedule No. 1) and goods of chapters 5 (products of animal origin), 6 (live trees or plants), 13 (saps and extracts), and 14 (vegetable plaitings) remain.
Definition of ‘manufacture’
In terms of the draft amendments, “manufacture” had 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”.
In the final provisions, “manufacture” is defined as “the execution at manufacturing premises of operations that contribute to the realisation of foodstuffs for commercial gain, which –
(aa) includes, but is not limited to the following activities:
- slaughtering of animals in an abattoir;
- mixing, forming or producing foodstuffs;
- processing, converting or extracting foodstuffs;
- handling, storing or preserving foodstuffs;
- conveying or transferring foodstuffs;
- packing or measuring off foodstuffs;
- lighting or air-conditioning for such manufacture;
- waste management as the result of manufacture; or
- electricity generation for such manufacture; and
(bb) excludes any activities specified in Note 6 which are eligible for a refund contemplated in item 670.04.”
Rebate item 670.04 relates to the “old” or permanent diesel refund system involving activities relating to mining, farming, forestry, electricity generation plants, etc.
Definition of ‘manufacturing premises’
The draft amendments defined “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 definition was that any business that engaged in manufacturing and retailing on the same premises would not qualify for the refund. This could particularly affect small businesses – for example, an artisanal bakery where bread is baked and sold in the same building.
The final provisions define “manufacturing premises” as:
“(aa) the business premises where the operations for the manufacture of foodstuffs are executed; and
(bb) excludes any business premises at which –
- the floor surface of the publicly accessible portion of the trading area for wholesale or retail sales outlet activities comprises more than 10% of the total floor surface of the business premises; or
- only the wholesale or retail distribution or sales of goods occur.”
The revised definition does, to a limited extent, accommodate businesses where manufacturing and retail activities occur on the same premises.
When the first version of the draft provisions was released, PwC commented that manufacturers of foodstuffs may 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 was not clear how the diesel usage (and concomitant refund) should be determined in these scenarios.
PwC said the second version of the draft provisions and the final provisions cater for the apportionment of diesel used for manufacturing and other activities. Guidance on how to apportion diesel purchased and consumed in qualifying and non-qualifying activities must be taken from Note 14(c)(x):
“(aa) where multiple equipment is powered simultaneously in respect of both the manufacture of foodstuffs and other activities, the volume of distillate fuel so used must be apportioned based on the ratio of distillate fuel used for the manufacture of foodstuffs relative to overall distillate fuel usage;
(bb) where the volume of distillate fuel used in any activity cannot with reasonable certainty be gauged, the volume of distillate fuel so used must be determined based on the average rate of distillate fuel consumption of the equipment concerned over the total time period of the usage thereof.”
Application for registration and refunds
In terms of the final provisions, persons who want to participate in the scheme must register as refund user.
Application for registration must be made on Form DA 185 with Form DA 185.4A3 as an annexure. The forms can be obtained from a Sars office or the Sars website, www.sars.gov.za.
But PwC told Moonstone that the final provisions have not clarified whether registering as a refund user on the Sars Registration, Licensing and Accreditation system must be done manually or electronically.
The premises in which manufacturing takes place must be registered with Sars Customs, which application must include a detailed plan of the premises.
A refund claim must be made on Form DA 66 submitted electronically or to the Sars office nearest to the manufacturing premises.
PwC said the draft and final provisions made no mention of the periods within which a refund claim (DA66) should be submitted to Sars. This means that refund users will need to consider the general provisions of the Customs and Excise Act in relation to the statutory (prescription) periods within which refund claims should be submitted to Sars.
Records that must be kept
PwC said users must maintain documentation from which, inter alia, the following can be established or determined:
- Storage, including storage logbooks.
- Usage, including usage logbooks.
- Usage logbooks must be supported by source documents – for example, serial number or identification marking of equipment, frequency of equipment use, diesel fuel or power usage rate of equipment, or any other incidents, facts, and observations relevant to the measurement of distillate fuel usage.
- Apportionment of usage where multiple equipment is powered simultaneously for manufacturing and other activities.
- The user must maintain complete records, books, accounts, or other documents for five years from the date of purchase, use, disposal, or loss of such diesel or refund claim, whichever occurs last. The documents must be readily available for inspection by Sars.
