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Diesel rebates and contractors

Diesel rebates and contractors

June 8, 2023

While the diesel rebate in the food manufacturing industry is a hot topic right now, it may also be an opportune time to re-examine certain of the other principles of the scheme. In this article we deal with the impact of the use of contractors by a participant in the diesel refund scheme.


Disputes often arise between SARS and taxpayers as to whether a taxpayer is entitled to a diesel rebate when it makes use of the services of contractors.

This article deals with the various principles and highlights certain of the pitfalls and areas of risk that should be kept on the radar screen.

The broad framework

The good news is that the use of contractors to perform qualifying activities on behalf of participants in the diesel rebate scheme is recognised as an activity carried on by the participant.

This means that diesel used by the contractor qualifies as eligible purchases for the purposes of the diesel rebate scheme.

But this is only half the truth …

Dry versus wet

Only diesel used by contractors contracted on a dry basis qualifies as eligible purchases for the diesel rebate scheme.

Dry basis of contracting

Where contractors contract with a participant in the diesel rebate scheme and only provides the equipment with which the activities are carried out, the contractors are regarded as having been contracted on a dry basis.

The diesel under these circumstances is provided by the participant from eligible purchases made by the participant.

So where do things go wrong?

In practice agreements sometimes state that the contractors will charge the participant in the diesel rebate scheme separately for diesel used and as such regards the arrangement as a sale of the diesel to the participant. The arrangement is therefore considered a contract on a dry basis.

But on closer scrutiny …

The structure of the rules governing the diesel rebate scheme requires that eligible purchases must first be made by the participant in the scheme and then thereafter be supplied to the suppliers of the relevant equipment to qualify as a contractor on the dry basis.

The arrangement whereby the participant in the scheme is charged by the contractor for diesel used is therefore not a contract on a dry basis and the participant in the scheme will not qualify to claim the relevant diesel rebate.

The bad news is that under these circumstances the entire diesel rebate is lost as the contractors are not entitled to the rebate either.

Wet basis of contracting

The wet basis is effectively the contractor providing the machinery and the diesel.

Under these circumstances neither the participant in the diesel refund scheme nor the contractor it is entitled to the diesel rebate.

Not a great position to be in!


While contractors are under all circumstances recognised as part of the eligible activities carried on by participants in the diesel rebate scheme, diesel used in  carrying out such activities will only qualify for the diesel rebate to the extent that the agreement constitutes a dry agreement of contracting.

The amounts involved in forfeited diesel rebates are often significant and mostly caused by inadequate upfront planning.

The job is never finished before the paperwork is done.

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