Businesses claiming diesel refunds may be inclined to view the South African Revenue Service’s (SARS) new diesel refund registration system as little more than an administrative change. However, the reforms signal a far more fundamental shift.
For the first time, South Africa is moving towards a dedicated diesel refund framework that sits outside the Value-Added Tax (VAT) system. The framework introduces new registration obligations, greater supply-chain visibility and potentially a renewed focus on compliance and substantiation.
A new era for diesel refunds
The move appears to reflect SARS’ intention to exercise greater visibility and oversight over diesel refund claims. The introduction of dedicated registration requirements, industry-specific categorisation and mandatory participation by fuel suppliers suggests a more structured approach to administering the incentive going forward.
For businesses, however, registration is likely to be only one part of the transition. One of the key questions is what the new system will mean in practice for compliance and substantiation requirements.
Historically, diesel refund audits have often focused on whether taxpayers could adequately demonstrate qualifying use. They have relied on documentary evidence, operational records and logbooks. The adequacy of those records has been the subject of numerous disputes between SARS and taxpayers over the years.
At present, there is limited guidance on whether the standalone diesel refund regime will alter these requirements or introduce new evidentiary standards. Businesses may therefore need to prepare for a new claims environment without complete certainty about the records that SARS will ultimately require. This is particularly relevant because record-keeping obligations remain a critical aspect of any diesel refund claim. They also remain a common area of scrutiny during SARS audits.
A more structured compliance environment
The new framework also introduces a level of dependency on fuel suppliers that did not previously exist. Under the revised system, suppliers are required to register and participate in the administration of claims. This raises several practical considerations, particularly for businesses sourcing fuel from multiple suppliers or operating across complex supply chains.
It remains to be seen how SARS intends to address these scenarios. It also remains unclear what the consequences may be if supplier information is incomplete or inconsistent, or if a supplier fails to register.
While the reforms may ultimately improve the administration and integrity of the diesel refund system, several operational details remain to be clarified. Businesses should therefore view the current registration phase as an opportunity to prepare for the new system. They should also reassess their record-keeping practices, internal controls and supplier arrangements in anticipation of increased scrutiny.
As further guidance emerges, taxpayers will need to monitor developments closely. The success of the new regime is likely to depend not only on the functionality of the registration platform. It will also depend on the clarity provided around record-keeping obligations, supplier participation and the practical requirements for substantiating future claims.
Greater visibility across the supply chain
Overall, the move to a standalone diesel refund system is, in principle, a positive development. Separating diesel refunds from the VAT process should provide greater transparency, traceability and certainty for both SARS and taxpayers.
The requirement for diesel sellers to register is intended to create a more verifiable supply chain. It should also strengthen the integrity of the system. The key challenge will be ensuring that both suppliers and users are registered. At the same time, businesses and SARS will need to avoid unnecessary administrative burdens arising from the additional compliance requirements.
If implemented successfully, the new system could improve processing times. It could also support more predictable cash flow and provide SARS with better tools to combat abuse of the diesel refund regime.
In the interim, businesses should consider reviewing their existing diesel refund processes, documentation and governance arrangements. This review can help identify any potential gaps ahead of the implementation of the dedicated claims process.
We are assisting clients in understanding the implications of the new regime. We are also assessing the robustness of their record-keeping and substantiation processes, navigating the new registration requirements and preparing for engagement with SARS as the framework continues to evolve.
This will enable businesses to prepare for the new diesel refund framework. It will also help them respond effectively as greater clarity emerges on SARS’ expectations.
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| Chetan Vanmali | Partner | mail me | | Amanda Nkwanyana | Partner | mail me | | Pérez Pillay | Associate | mail me | |
| | Webber Wentzel | | ||
