SARS: New Standalone Diesel Refund System Launched, Mandatory Re-registration

• SARS is launching a new standalone diesel refund system, separate from VAT, requiring mandatory re-registration for all users and sellers.
• The registration process began on September 21, and claims for diesel purchased from unregistered sellers will not qualify.
• Eligibility for the diesel refund system has expanded to include contractors operating on a wet basis and covers eight specific industries.
• The implementation involves three phases, including the declaration of relationships between users and sellers to enhance transaction monitoring.
• Key compliance concerns remain regarding the management of multiple suppliers, potential administrative burdens, and detailed requirements for logbooks and supporting records.

Despite the potential benefits of increased visibility and simplified administration, several practical questions regarding compliance remain unanswered.

The South African Revenue Service (SARS) has initiated a significant overhaul of its diesel refund mechanism, introducing a new standalone diesel refund system that operates independently of the existing Value-Added Tax (VAT) framework. This development forms a key component of SARS’s broader excise modernisation project, aiming to streamline processes and enhance oversight. A critical change under the new regulations is the mandatory re-registration for all current and prospective users, with the registration period commencing on September 21.

Unlike the previous system, the updated framework mandates registration not only for diesel users but also for all sellers of diesel. This expanded requirement means that any claims for diesel purchased from an unregistered seller will be deemed ineligible, underscoring the importance of supplier compliance. According to Amanda Nkwanyana, a partner in Webber Wentzel's tax team, this standalone approach is expected to simplify administration and provide both SARS and taxpayers with improved visibility over registrations and claims, potentially creating a more dedicated process for South Africa diesel rebate changes.

The new system significantly broadens the scope of eligible entities. Previously, only those purchasing diesel for their own direct use qualified for the rebate. However, under the revised rules, contractors operating on a 'wet basis' – meaning they provide both equipment and operators, including fuel – will now also be eligible, as confirmed by Mahlatse Ledwaba, an excise specialist at SARS. The new legislation categorises qualifying activities into eight distinct industries: agriculture (which now encompasses both farming and forestry), fishing, mining on land, offshore mining and offshore shipping, harbour shipping, rail freight transport, and electricity generation.

Registration for the SARS new standalone diesel refund system can be completed via eFiling or by scheduling an appointment at a SARS branch office. Applicants are required to submit specific supporting documents, which vary depending on their industry category, and these can be uploaded directly through the eFiling system. Upon successful application, individuals will receive an acknowledgement letter, a unique case number, and a subsequent letter detailing the outcome of their registration. It is important to note that claims will continue to be processed through the current system until an official 'go-live date' for the new system is publicly announced.

The implementation of the new SA diesel refund system changes is structured in three distinct phases. The initial phase focuses on the registration of both users and sellers. The subsequent phase will require users and sellers to formally declare their relationships to SARS. This step indicates SARS's intention to establish a verified connection between diesel sellers and users, enabling more effective monitoring of transactions and validation of future claims, as observed by Amanda Nkwanyana.

Despite the potential benefits of increased visibility and simplified administration, several practical questions regarding compliance remain unanswered. Nkwanyana highlights concerns for taxpayers who procure diesel from multiple suppliers, noting a lack of detail on how these complex relationships will be managed, the potential administrative burden, and the implications if a supplier falls out of compliance. Furthermore, the perennial issue of logbooks and supporting records, historically a major point of contention during diesel refund audits, was not extensively addressed in SARS's initial communications regarding changes to diesel refund system eligibility. The webinar did not provide clarity on whether substantiation requirements will change or how SARS plans to resolve these longstanding record-keeping disputes.

SARS has indicated that further information sessions will be conducted to inform taxpayers of all the requirements and to assist them throughout the rollout process. The third and final phase of the implementation involves the development of user profiles. This will entail detailing their qualifying activities, providing site plans illustrating where these activities are performed, listing the equipment utilised, and submitting applicable licenses and permits. This crucial aspect of the SARS excise modernisation project is currently still under development, with more details expected as the system progresses towards full operational status.

Lawyers and compliance officers must advise clients on the mandatory re-registration for the new SARS standalone diesel refund system, including new requirements for sellers and contractors, and prepare for potential compliance challenges regarding supplier verification and record-keeping under the updated regulations.

Source: Original reporting via Moneyweb