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June 8, 2023
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The long-anticipated rules for manufacturers of foodstuffs to participate in the diesel rebate scheme have finally arrived. But for participants to get out of the starting blocks may not be a walk in the park. This article deals with the practical challenges of manufacturers of foodstuffs to participate in the diesel rebate scheme.
Introduction
The extension of the diesel rebate scheme to manufacturers of foodstuffs has been announced in the 2023 budget speech with great fanfare. The practical implications for potential participants in the scheme may however be prohibitive and a disincentive to participate.
This article deals with the real deal that potential participants face.
The period of participation
Participants will only be entitled to participate in the diesel rebate scheme for the period 1 April 2023 to 31 March 2025, i.e. for twenty four months.
In the 24 month period the participants will be required to implement and maintain systems to measure eligible use of diesel and submit diesel refund claims. The expertise to develop and operate the systems is unlikely to be available readily in organisations that do not normally face customs and excise issues. Participants would therefore most likely have to revert to scarce (expensive) expertise outside the organisation.
From a cost-benefit perspective the systems required to monitor and extract the relevant information and ensure an audit trail is maintained, must be weighed up against the potential quantum of the diesel rebate claims over the effective period.
The intention with the extension of the diesel rebate scheme to foodstuff manufactures was to reduce the cost of electricity generation in the food price. If regard is had to the systems that would need to be implemented and maintained, it is unlikely that there will be any meaningful benefits accruing to participants. Whether anything will be left to reduce the cost of food prices is questionable.
Qualifying foodstuffs
Only certain categories of foodstuffs qualify for the diesel rebate scheme. The good news is that the ambit of qualifying foodstuffs is quite broad and essentially only excludes certain beverages and food stuffs containing alcohol.
Not a bad start …
Qualifying equipment
Only diesel consumed in stationary fixed electronic power generators qualifies for the diesel rebate scheme. Mobile portable electronic power generators therefore do not qualify.
If regard is had to the fact that load shedding is a temporary phenomenon (yeah right!), investing in fixed power generators to qualify for the diesel rebate makes little sense unless the capital and operating expenses can be recovered within 24 months – that is not going to happen!
And it gets worse …
Qualifying premises
Only manufacturing activities may be conducted on a premises in respect of which the diesel rebate is claimed. It therefore excludes any premises where wholesale distribution or retail sales activities occur.
What about the bakery and butchery in the retail outlet?
Record keeping
And this is where the wheels really come off …
Participants are required to retain detailed logbooks and records of all purchases and use of diesel for qualifying manufacturing purposes.
Where a participant manufactures both food stuffs that qualify for the rebate and others that don’t, a distinction must be made between diesel used for qualifying production and otherwise.
A distinction must also be made between power usage for manufacturing purposes and other purposes, for example the administrative section of the manufacturing premises.
Furthermore, records must be kept of each instance when the generation power is used.
This is normally where potential participants lose all interest.
But wait, there is more …
The SARS processes
To participate in the scheme, participants must register manually as an Excise Refund User and submit claims manually.
The VAT system cannot be used to make claims irrespective of any claimant currently being registered as a participant in the diesel refund scheme for other purposes. Participants falling into this category will therefore have two diesel rebate registrations.
The refund
And then you wait…
Summary
While the intention with the extension of the diesel rebate scheme to manufacturers of foodstuffs may have been noble, participating in the proposed scheme in practice is not for the faint hearted and will mostly not make commercial sense.
Will it result in a drop in food prices? You decide…
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