In the 2023 budget speech, the Minister of Finance introduced tax relief measures to address the current load-shedding problem in the country. One notable measure is the extension of the diesel refund system to manufacturers of foodstuffs. Currently this is worth R3.80 per litre of diesel consumed. This initiative aims to limit the impact of power cuts on food prices. SARS has since posted a memo to clarify certain aspects of the implementation of this refund system:
- Registration Process: Manufacturers interested in participating in the new refund scheme must apply to register as refund users, including providing information about their manufacturing premises. The registration involves submitting the DA185 and annexure DA185.4A3 forms.
- Effective Date: Approved registration as a refund user will be effective from 1 April 2023, marking the date of eligibility for claiming refunds.
- Refund Payments: Refund payments to registered refund users will begin once the administration system is developed, following the effective date of the initiative.
- Retrospective Refunds: Registered refund users will have the opportunity to apply for refunds retrospectively for qualifying diesel purchases and usage once the legislation for the new refund item is promulgated.
- Separate Refund System: The new refund for foodstuff manufacturers is distinct from the existing diesel refund system administered through the VAT system. Refund applications for this initiative must be made using the DA66 process, and this applies to both current diesel refund users and new participants.
- Compliance and Penalties: Inflating diesel refund claims via the current VAT diesel refund system to account for diesel usage within food manufacturing will be subject to punitive measures as outlined in the Customs and Excise Act, No. 91 of 1964.
Although the formal refund rules have not been published in the form of a final gazette yet, SARS did post an updated gazette on 19 April which contains additional clarifying information.
For example, the definition of “foodstuffs” was further narrowed and a list of activities were provided which would fall into the definition of “manufacture”. These are:
“(A) slaughtering of animals in an abattoir;
(B) mixing, forming or producing foodstuffs;
(C) processing, converting or extracting foodstuffs;
(D) handling, storing or preserving foodstuffs;
(E) conveying or transferring foodstuffs;
(F) packing or measuring off (sic) foodstuff;
(G) electricity generation for such manufacture.”
The meaning of “manufacturing premises” has also been clarified:
“(aa) the business premises where the industrial operations for the manufacture of foodstuffs are performed; and
(bb) excludes any business premises at which –
(A) the publicly accessible portion of the trading area for wholesale or retail sales outlet activities comprises more than 10 per cent of the total floor surface of the business premises;
(B) only the wholesale or retail distribution or sales of goods occur.”
Record keeping requirements were also clarified in the 19 April gazette, along with the following statement:
“Notwithstanding the usage logbook obligations prescribed in paragraph (c)(vii) –
(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.”
The extension of the diesel refund system to manufacturers of foodstuffs is a significant step towards mitigating the impact of power cuts on food prices. It is important to adhere to the guidelines and avoid any misuse of the refund system.