OVERHAUL OF DIESEL REFUND SYSTEM ~ FISHING INDUSTRY NEWS (MARCH 2020)


OVERVIEW

On 31 January and 4 February 2020, the South African Revenue Service (SARS) published for comment a draft rule and schedule which bring about substantial amendments to the diesel refund system (DRS). Comments on such draft were due on 16 March 2020 and various industry stakeholders have submitted comments.

Over the last at least 5 (five) years, there have been several interactions and workshops with SARS regarding changes to the DRS and SARS must be commended for taking into account these discussions as well as representations made during appeal processes, and for putting out a draft proposal. A high-level overview of the draft rule and replacement note 6 must be commended in that:

• There appears to be a definite attempt by SARS to deal with issues that have been raised by industry.

• One of the key issues in the past was the linking of the diesel rebate system to the VAT system and the prejudice and complications which that caused industry in general. This new
proposal delinks the DRS from the VAT system and the new system will be a standalone system.

• To make the new system more convenient, application and returns can be submitted online once a user has registered a profile and uploaded the necessary documentation.

• Certain contentious provisions under the current note 6 are going to be replaced. For example, the “wet” and “dry” contracting provisions are to be deleted.

• The new provisions do allow for a more simplified logbook and in this regard, it is hoped that the proposed logbook by FishSA is implemented.

• Although on the face of it, the process appears to be more simplified and efficient, there are a number of issues which need to be ironed out or clarified in the amendment process.

Issues still to be ironed out

It is not entirely clear whether existing users who are currently registered must re-register as well as creating a user registration profile.

Although the new system is to be delinked from the VAT system, in terms of other provisions of other customs and exercise provisions, SARS could still set off diesel refund claims against other taxes due by the user.

With the wet and dry contract provisions to be deleted, the new proposal does require some further clarity regarding whether a user can contract a vessel to catch and in terms of such contract purchase the diesel and thereafter claim the diesel refunds. The current system does allow for vessels to be owned or charted.

In terms of the online user profile, there is information to be uploaded by the user including the details of catch permits and contracts with rights holders and vessel owners in respect of the carrying out of the catching function. This needs to be updated within 14 (fourteen) days according to the proposal which may be too short a period taking into account the relevant sectors involved.

Again the claiming of diesel refund is only in respect of South African vessels fishing in South African waters. As there are certain instances where South African vessels catching on South African permits/licenses can fish in the high seas, it would be ideal for the new provisions to have an exemption section which allows for the commissioner to grant a dispensation in these particular circumstances.

Another proposed change under the amendment note 6 is that for a purchase of diesel to be eligible, it must be from a licensed wholesaler in terms of the Petroleum Products Act. This is currently not a requirement and it is anticipated that this proposed amendment will cause prejudice to a number of operators in the sector and SARS should relook at this part of the proposal.

Another issue is that the amendment provisions provide for offloading at a fishing harbor which is defined as a “declared fishing harbor” in terms of the Marine Living Resources Act (MLRA). However, not all offloading of fish occurs at declared fishing harbors and as such, SARS needs to relook at this additional requirement that has been inserted in its proposal.

Currently and in the proposal, the definition of fishing vessel is limited to vessels with inboard motors and excludes vessels with outboard motors. With the advent of the small-scale sector and the operators in this sector, it is suggest that SARS should look at also including vessels with outboard diesel motors.

It is also advised that the proposed definition of local fishing vessel be amended to cover both registered vessels and licensed vessels.

An important change in the proposal, is the list of qualifying fishing activity. Currently the activity of commercial fishing is linked to the definition of fishing under the MLRA. The new proposal set out its own qualifying fishing activity list which in fact limits the activities which are currently covered. For example, sailing from one harbor to another harbor in order to place one’s fishing vessel on the slip for say the 2 (two) year hull certificate survey would not allow for diesel to be claimed under these circumstances. Currently however this activity would fall under an “operation in support or in preparation of fishing” which would be allowed for diesel refund claiming. Only trial runs in respect of refits or repairs to a vessel are excluded currently. It is submitted that SARS should look to widening this aspect of use to be more consistent with the current position.

As regards transires, it would appear now that SARS recognizes that its previous requirement that there must be transires was not actually incorporated in the legislation and they have now incorporated a transire requirement for the claiming of diesel refunds. A technical point is that transires are strictly only required for registered vessels and not for licensed vessels. As such, there will also have to be changes to the transire rules to include transires having to be issued for licensed vessels if SARS is to follow the letter of the law.

As regards usage logbooks, as referred to previously herein, it is submitted that SARS should accept a simplified logbook which is based on the ship stop system where users measure the use of diesel based on the amount of diesel required at the end of a trip to top up the vessel’s tanks. There is reference to this in the proposed changes, but it is submitted this needs to be further clarified by SARS.

In conclusion, SARS must again be complimented for applying their mind and putting out proposed changes to the DRS. In addition it would be ideal at this point for SARS to hold a further workshop for stakeholders in order to refine and amend their proposal so that it can operate as a well oiled machine in the future.



KNOW YOUR COVER – HULL INSURANCE ~ FISHING INDUSTRY NEWS (MAY 2020)


INTRODUCTION

The nature of fishing vessels and their operations gives rise to a wide variety of risks and exposes the vessel and those that run the vessel to a number of different types of losses. Marine hull insurance being one of the oldest types of insurance has the purpose of limiting such risks and such losses, and is a means by which vessel owners can to a degree manage their risk.

Recent experience has indicated that sometimes vessel owners, their brokers and indeed the insurers are at odds as to what the insurance policy actually covers and how certain of the terms are to be interpreted. The general rule is that if the policy wording is ambiguous it should be interpreted in favour of the insured. But one shouldn’t have to get to this point if the process is started correctly.

 

THE BROKER

The intermediary who deals with the insurer is your broker and this is the person who consults with you, assesses your needs and obtains quotes from various insurers which are then presented to you for decision.

The experience of the broker in your particular industry is of vital importance and as such choosing the correct broker is likewise a pivotal decision in making sure you cover the hull risk of your business as best possible and at a reasonable premium.

Often brokers present a cryptic schedule with references to clauses and terms of cover which are not actually contained in the schedule or to any attached document. In those circumstances insist on the full policy wording before deciding on the insurance or at least ask pointed questions as to the cover which is being promised.

 

INSTITUTE CLAUSES

In the fishing industry, the clauses most often incorporated into policies are the institute fishing vessel clauses which form part of the standard policies of the International Underwriting Association of London often referred to as “institute clauses”. These clauses when read together with the English Marine Insurance Act of 1906 set out the ambit of your hull cover.

However, these clauses at times are not easy reading and it is important for you to understand what exactly is being covered. This is particularly so when often there are exclusions referred to in the policy schedule which are very briefly written and can be misleading.

One of the first and most obvious questions is: what is the cover of the policy (and in insurance terms what are the insured perils)? The institute clauses generally set out the main cover under 2 categories: firstly, the perils which are covered by the underwriter irrespective of a want of due diligence by the assured – it doesn’t matter if the insured has been negligent ; and secondly, the so called  “Inchmaree cover” which covers perils insured only if the assured has no want of due diligence – there is no cover if the insured is negligent.

the first category covers the following perils:

  • Perils of the seas, rivers, lakes or other navigable waters – the simple action of wind and wave which gives rise to wear and tear is not covered under this peril. What is covered is fortuitous or unexpected eventualities eg extraordinarily heavy weather. Cover under this peril is regardless of whether the assured or its servants have been negligent.

  • Fire and explosion – this cover is in place regardless of the negligence of the assured, assured servants or any third party;
  • Violent theft by persons from outside the vessel;
  • Piracy;
  • Breakdown of or accident to nuclear installations or reactors;
  • Contact with aircraft or similar objects, or objects falling therefrom, land conveyance, dock or harbour equipment or installation;
  • Earthquake, volcanic eruptions or lighting;

The second category being the inch Maree perils only provide cover if there was no want of due diligence from the insured. These perils are briefly as follows:

  • Accidents in loading, discharging or shifting catch, fuel or stores;
  • Bursting of boilers, breakage of shafts or any latent defect in the machinery or hull (ie machinery breakdown);
  • Negligence of master, officers, crew or pilots – this cover applies even if for instance a master who was negligent owns shares in the vessel;
  • Negligence of repairers or charterers provided such repairers or charterers are not an assured under the policy;
  • Barratry of masters, officers or crew – this is the willful or intentional causing of harm to the ship owner by the master, officers or crew.

There is also other miscellaneous cover under the institute clauses such as:

  • Pollution Hazard cover;
  • General average and salvage under certain conditions;
  • Wages and maintenance of crew during the period of repairs;
  • Sue and labour cover for expenses incurred by the insured to try minimize loss;
  • Collision liability – this is liability of the insured to third parties arising from a collision (subject to certain exclusions);
  • Certain protection and indemnity cover for liability to third parties;

EXCLUSIONS

Along with enquiring from your broker exactly what is covered by the policy, the next important query is to ask what exclusions to cover there may be. It should be insisted that these exclusions are made clear in the policy wording and/or the quote before you accept the cover offered.

WARRANTIES

In addition, one should ask whether there are any warranties in the policy which are given by the insured to the insurer particularly regarding seaworthiness of the vessel and/or compliance with maritime legislation. One does not want a strict warranty in your policy which the insurer can rely on to void the policy even though the subject matter of the warranty is not related to the cause of loss.

DISPUTE RESOLUTION

Finally make sure that you know what law is applicable to the policy and what is the dispute resolution mechanism applicable. It must be a mechanism that is convenient and affordable for the insured.

In fact nowadays it would be prudent for both the insured and the insurer in fact to agree an arbitration clause in the policy which allows for local arbitration in South Africa and preferably agreed maritime arbitration – which is about to be launched in South Africa where experienced maritime lawyers are used as arbitrators in maritime matters without the need for lengthy court proceedings.

CONCLUSION

In a fishing operation a fishing vessel is one of the major assets of the business and is the asset which is placed in the most dangerous position almost on a daily basis. Knowing that you have the correct cover in place is therefore paramount to any business owner. So when renewing or placing cover over one’s vessels, set aside a specific time every year where you can meet with your broker and other operational staff within your business to discuss and agree on the type of cover you require so that there is no misunderstanding when a claim arises in the future.