How to train the diesel rebate dragon …

The movies teach us how to train a dragon, but very few taxpayers seem to get the same success with training the diesel rebate dragon. Taxpayers are often disillusioned and (slightly) distraught about SARS disallowing their diesel rebate claims. In this short series of articles we shall explore the nature of the diesel rebate dragon and how to tame it.

Introduction

We often receive enquiries about the reasons why SARS disallows claims for diesel rebates and how unfair it is.

If regard is had to the nature of diesel rebates and how it fits into the larger body of tax law, it is just short of a miracle that any diesel rebate is ever approved.

In this short series of articles we shall deal with the nature of diesel rebates and two specific industries most commonly impacted by it.

Where do diesel rebates fit in?

The diesel rebate regime rebates the fuel levy and the Road Accident Fund levy in the form of refunds paid in respect of the acquisition and use of diesel for specific purposes.

The fuel and Road Accident Fund levies are imposed in terms of the Customs and Excise Act. Any rebate of the levies is therefore also rebated in terms of the Customs and Excise Act although it is accounted for via the VAT system.

In short, the diesel rebate resides under the Customs and Excise regime.

A closer look …

Most of us are familiar with the concepts of customs rebate stores and goods cleared into customs warehouses. In both instances the goods are imported under rebate of customs duty and VAT. Where such goods are subsequently cleared for home use in South Africa, customs duty and VAT become available.

The principles applicable to the diesel rebate are identical to goods imported into a rebate store or customs warehouse facility except for the fact that the goods are not imported but locally procured. 

The diesel rebate system is essentially a customs storage facility without the customs rules applicable to such facilities. The onus is therefore on the person operating the receipt and distribution of diesel from and out of such facility to prove to Customs and Excise how every litre that entered the storage facility has been used.

Now that you are over the shock of having operated a customs storage facility without knowing it, let’s examine the consequences thereof.

What should you be doing?

Anybody familiar with goods imported into customs rebate stores or into customs warehouses knows that very strict controls apply to such goods and that SARS may at any time knock on the door of the storage facility to ensure that the goods are still in the facility, failing which, nasty sanctions may apply.

The compliance requirements applicable to diesel rebate users are no different from the customs rules that apply to any other customs rebate facility except that the customs authority now trusts the diesel rebate user to maintain and operate a customs rebate facility without having to comply with the formal rules applicable to such facilities. This situation can best be described as an informal customs storage facility.

From the aforesaid it should be clear that the “informal customs storage facility” regime places a higher burden of proof on the user to ensure that its accounting systems provide accurate information of how each litre of diesel has been used.

It is not acceptable to use averages or general explanations of usage. The paperwork must prove exactly where each litre of diesel has been used and what it has been used for.

But what about the 80% get-out-of-jail-free card?

The 80% get-out-of-jail-free card

Generally speaking the diesel rebate is only allowed on 80% of diesel purchases qualifying for the diesel rebate.

In practice the 80% rule is sometimes viewed as SARS excepting that there will be non-eligible purchases included in the claim and that the 80% rule will allow for any miscalculated eligible use.

The above school of thought does not recognise the fact that customs rebates can be implemented at any level; goods may not necessarily be subject to a 100% rebate. The legislation determines the level of the rebate allowed.

In the case of the diesel rebate, only 80% of eligible purchases is rebated. It is a simple as that. It has nothing to do with allowing for non-eligible purchases included in eligible purchases.

Conclusion

In this introductory article we briefly deal with the structure within which the diesel rebate operates. In the next article we shall deal with the specific application of the rules as it applies to the agricultural industry.

If you are playing in this field, do you not miss the next article.