The diesel rebate or refund has been in existence for more than a decade and is claimed as part of the value added tax (VAT) process. It applies to you if you use it for your own “primary production activities” in one of the following business categories:
• Mining on land
• Commercial fishing
• Coastwise shipping
• Offshore mining
• National Sea Rescue Institute
• Rail freight
• Electricity generation
In SARS’ words it is “to encourage and enable primary production”. Depending on your usage, the rebate at 80% of R1.58 per litre of diesel (this is for farming operations) can be substantial.
What is the catch?
For starters, there are many specific requirements to take into account and SARS applies the regulations strictly. It is definitely worth discussing this with your accountant.
The rebate is claimed as part of the VAT system, and as many of you will have experienced, SARS has been actively querying and auditing VAT returns, particularly when it comes to refunds. SARS’ approach has become increasingly strident and many taxpayers get their credentials queried or are notified of potential 200% penalties. Thus, when you overlay the exacting methodology of the diesel rebate with SARS already actively querying VAT returns, it can be seen why many taxpayers are wondering if it is worth it.
Another issue that has arisen is that there have reportedly been instances where SARS have asked vendors to not deduct the refund as it is easier if SARS calculates the refund. After the calculation, SARS then pays the refund to the vendor. This is because the SARS VAT system and the Diesel refund system do not “talk” to each other.
What to do?
In the case of SARS asking for vendors to allow SARS to calculate the refund, the position is clear. The refunds are governed by the Customs and Excise Act and SARS merely performs the administrative function of processing the claims. In terms of the “VAT 404 Value-Added Tax Guide for Vendors” dated 12 March 2012, Diesel refunds are to be off-set against any VAT liability or increase the amount of any refund due to you. Thus, taxpayers should deduct the Diesel refund themselves.
Readers are no doubt like the vast majority of taxpayers – you are law-abiding and pay your taxes. As the rebate can have a positive effect on your cash flow, this is worth pursuing. As mentioned above, it makes sense to make use of your accountant or tax specialist, especially because, as seen above, SARS do not always get it right. Your accountants or tax advisers will have better access to SARS, know their way around the process and be familiar with handling the queries SARS will probably throw at you.
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