On 18 March 2022, the Minister of Finance published amendments in Government Gazette No. 45056 under notices R.1892 and R.1893, aimed at moving diesel refund registration away from the VAT-linked model. This means there will now be a dedicated diesel refund system. As the new system will be separate from the VAT system, an eligible diesel refund user (which includes wet contractors) will be required to create an electronic diesel refund user registration profile.
Kagiso Nonyane, Senior Manager: Tax, BDO South Africa, says this development is a significant move by the South Africa Revenue System (SARS) to manage refund fraud while adding a compliance layer to diesel refund users. SARS hopes that in addition to strengthening fraud controls, the system will further improve transparency in how it processes qualifying refunds for diesel users. According to SARS, diesel sellers will also be required to be registered and compliant under the new system. Registration on the new system was expected to go live by Monday,21 September 2026. However, claims must still be submitted on the VAT system until the new claim functionality on the new system is implemented next year.
“The success of this move however will largely depend on among other factors, the reliability of the new user interface and ability to ensure there is a clear audit trail starting from when and where the diesel was purchased to eligible use and eventually claiming a refund. Another potential risk is how effective the system will be to identify qualifying diesel use, particularly for those businesses with mixed operations. In this case, the burden of proof will be on the businesses to show how the diesel from which a refund is being claimed was used for eligible activities,” says Nonyane.
At a recent webinar, SARS reiterated that a qualifying diesel refund user may be unable to claim a refund where diesel is purchased from a seller that is not registered or compliant under the new standalone diesel refund system. In addition, the seller should operate a going concern for the sale of petroleum products, be licensed as a wholesaler in terms of the Petroleum Products Act, No. 120 of 1977, and sell the diesel directly to the user as the end customer for the user’s own consumption.
“The practical implication is that, even where the user conducts qualifying activities and applies the diesel for eligible purposes, the diesel refund claim may still be disallowed if the seller does not satisfy the applicable registration, licensing and direct-sale requirements. Users should therefore verify the seller’s compliance status before purchasing diesel and obtain the seller’s diesel registration number as evidence that the seller is registered under the new system,” Nonyane says.
Existing diesel refund users must register on the new system as the registration is not automatic. The supporting documents required for the user registration profile include the following:
- Proof of address
- Bank confirmation
- category of qualifying activities performed;
- the location where the qualifying activities are performed;
- storage facilities for eligible purchases;
- list of diesel sellers;
- assets that are powered by eligible purchases of the diesel refund user, with the identifying features, make, model and fuel tank capacity thereof, as well as the physical address of any such asset which is situated at a fixed geographical location.
Nonyane says the delinking of the diesel refund from the VAT system will improve cash flow certainty because users will no longer have their refund payments tied to unrelated VAT return issues or VAT account queries. “While the registration on the new standalone system and the creation of the diesel refund user registration profile may increase upfront compliance obligations, it will hopefully create a clearer audit trail and help SARS and users assess eligibility more consistently.”
Kagiso Nonyane, Senior Manager: Tax, BDO South Africa