As the National Treasury and the South African Revenue Service (Sars) work to streamline the current diesel refund system, KPMG believes a more simplified and concise refund framework is required, particularly with respect to mining sector beneficiaries.

The current Sars diesel refund system provides qualifying primary producers in the agriculture, forestry, fishing and mining sectors a full refund of the Road Accident Fund levy and a partial refund of the fuel levy for every litre of diesel consumed.

However, industry and Sars stand divided currently on the practicality of the diesel refund system and the interpretation of the governing legislation, and, following the emergence of “several anomalies”, the National Treasury in February published a ‘Discussion Document on the Review of the Diesel Fuel Tax Refund System’ for public comment and further consultation.

The diesel refund system has faced several technical, administrative and legal challenges, some of which are still under way, as a result of differences in interpretation, besides others, notes KPMG South Africa Tax and Legal associate director for trade and customs Llewellyn Jordaan.

The focus of the system should change, he told delegates at a KPMG-hosted mining- focused diesel refund workshop, adding that qualifying activities and beneficiaries needed to be unambiguous and the solutions employed to improve the system simplified.

“[There is a need] to develop a system that is quite clear and not open to interpretation,” he commented.

The shared value-added tax (VAT) administration, logbook compliance and authorisation of primary production, as well as outsourcing of operations, were the main concerns outlined in the discussion document, Jordaan pointed out.

Seeking further stakeholder input, KPMG highlighted the current concerns of industry, which included the eligibility of the beneficiary of the refund, which is stipulated as the mining right holder for its own production facilities, effectively sidelining joint venture subsidiaries, dry and wet contracting and appointed contractors.

Further, in the mining industry, logbook record-keeping for certain mining equipment can be “an insurmountable task”, and keeping track of the volumes and percentages of equipment’s sometimes divided workload is near impossible.

In addition, the system is limited somewhat by the exclusion of processing, particularly crushing and screening, which is an integral part of mining activities. In fact, no secondary mining activities are listed as eligible for the tax benefits.

“There is a need to define the eligible activities,” Jordaan said.

An idea that emerged from the workshop as an alternative solution includes a focus on the registration of the mine’s diesel-consuming vehicles and equipment, as opposed to keeping a record of eligible activities, as such vehicles are used for core mining activities.

KPMG is compiling its response submission for consideration to the National Treasury, listing this and other suggestions obtained from industry during the workshop.

The National Treasury had tabled its own proposed reforms, including qualifying primary production activities rather than users, for which an indicative list of the type and nature of qualifying activities, and use by primary producers, is being finalised.