The standalone diesel-refund system launched by the South African Revenue Service should allow the tax authority to assess diesel refund claims on their own merits. It will also allow for specialised controls tailored to diesel usage and qualifying activities.
Tax specialists and large diesel users believe the new system, if implemented properly, could reduce disputes and improve consistency in the way claims are assessed.
Chetan Vanmali, indirect tax specialist at Webber Wentzel, says the transition period may increase complexity in the short term because users will need to register, build electronic profiles, maintain seller relationships, and meet enhanced documentary requirements.
A standalone system for diesel refunds
SARS recently held a workshop setting out the separation from the value-added tax system and the roll-out of the new standalone diesel refund system.
Under the new rules, all current users will have to re-register via eFiling or by visiting a SARS branch. In a significant change, sellers are also required to register. Contractors are also allowed to participate in the new system and will be able to register. However, they will be able to claim only once a go-live date has been announced.
Specific supporting documents will be required and can be uploaded on the eFiling system. According to Mahlatse Ledwaba, national diesel refund specialist at SARS, the documents will vary depending on the categories for which the user applies.
The refund scheme is split into specific qualifying categories based on the nature of the operations – agriculture (formerly farming and forestry), fishing, mining on land, offshore mining, offshore shipping, harbour shipping, rail freight transport, and electricity generation.
Deshen Pillay, a member of SARS’s electronic registration design team, explained that the registration phase has been split into three:
- Registration as a user or seller.
- Relationship management functionality, where users and sellers declare relationships.
- User profile information capturing and validation, which includes qualifying activities, the addresses where the activities are being conducted, equipment, and applicable licences or permits. This phase is still under development and will be implemented early next year.
Greater transparency, but new compliance demands
The key benefits, according to Vanmalli, are improved transparency, better compliance and less fraud, faster processing, and more predictable cash flow.
“The new dashboard and standalone administration should provide users with clearer visibility of registrations, claims, verifications, and refund status than is currently available through the VAT process.”
Vanmali adds that the system introduces electronic registration, automated checks, and seller-user relationship validation. These measures should help SARS to identify high-risk transactions and reduce fraudulent or unsupported claims.
“Separating diesel refunds from VAT may reduce situations where diesel refund issues affect VAT refunds, or vice versa. Businesses should have greater certainty regarding both processes,” he says.
Seller registration is arguably one of the most important features of the new system, says Vanmali. SARS has indicated that sellers must register so that diesel users can establish and maintain electronic seller relationships within the system.
The objective appears to be creating end-to-end traceability of diesel purchases. One of the major practical risks is when sellers are not registered on the new standalone system.
“If a supplier is not registered, it may become difficult for the claimant to validate purchases within the new system. It remains to be seen exactly how SARS will deal with every scenario, but there is a real possibility that transactions involving unregistered suppliers could attract additional scrutiny, delayed processing, or even place the entitlement to the claim at risk if SARS cannot validate the supply chain.”
Vanmali says this may create pressure on diesel users to procure fuel only from suppliers that have completed the registration process.
Webber Wentzel tax partner Amanda Nkwanyana says many taxpayers purchase diesel from multiple suppliers, but there is very little detail on how these multiple-supplier relationships will be managed in practice, what administrative burden this may create, and what happens if one of those suppliers falls out of compliance.
Given the large number of purchasers and suppliers that have to re-register, SARS has started the registration process a few months before the introduction of the claim-submission functionality.
Current claims will continue under the existing VAT-embedded system. Once the new system is live, claims can be submitted monthly, and there will be no offsetting against other taxes, Ledwaba said.
Monthly claims bring cash-flow benefits
Vanmalli believes there are strong arguments in favour of monthly claims. Diesel refunds relate directly to operational fuel consumption, which is generally monitored monthly.
“A monthly process can improve alignment between fuel purchases, usage records, and refund claims. It also allows discrepancies to be identified much earlier than under a longer reporting cycle.”
He adds that from a cash-flow perspective, monthly refunds are generally preferable because businesses obtain relief sooner, particularly in sectors such as mining and agriculture where diesel expenditure can be substantial.
“The main caveat is that more frequent claiming also requires stronger administrative discipline. Taxpayers will need accurate logbooks, reconciliations, and supporting documentation on a continuous basis rather than preparing records retrospectively.”
The onerous and administrative cumbersome record-keeping requirements have been a large deterrent for diesel users to claim their refunds.
Nkwanyana says although the new system appears promising, more guidance is needed, particularly in relation to claims, record-keeping requirements, and the practical operation of the seller-user relationship framework.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies.
