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.

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