PnP, Shoprite Checkers and Spar CEOs urge extension of diesel levy refund

The CEOs of Checkers Shoprite, Spar and Pick n Pay are urging government to extend the diesel fuel levy refund for food manufacturers to retailers as well to mitigate the effect of load shedding on their operations. 

The diesel refund system was introduced to protect the competitiveness of domestic primary producers, most notably mining, agriculture, forestry and other off-road users of diesel. With persistent load shedding, a number of industries use a higher than usual amount of diesel to sustain their operations,

Olebogeng Ramatlhodi, director and indirect tax leader at Deloitte Africa, explained at a budget preview.

The system is a policy of National Treasury administered by the South African Revenue Service (Sars) was introduced in 2000.

“At the time, a few industries were considered to benefit. The diesel refund system currently benefits domestic primary producers through a full or partial relief from diesel fuel taxes. The understanding at the time was that these industries were adding value and employing many people due to the labour-intensive nature of their activities,” Ramatlhodi said.

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CEOs disappointed by being left out

Pieter Boone, CEO of Pick n Pay, Mike Bosman, CEO of Spar and Pieter Engelbrecht CEO of Shoprite Checkers said in a joint statement as the CEOs of South Africa’s three largest food and grocery retailers, they were very disappointed that the budget extended the diesel fuel levy refund to food manufacturers, but not to food retailers. 

“Government has accepted the logic that the food industry should not be penalised for the energy crisis but has only done half the job. Our supermarkets are on the front line to keep the lights on and the shelves and chillers stacked for customers during loadshedding. It costs us billions of rands in diesel to fuel our emergency generators,” they said. 

“We are doing our best to absorb as much as possible of this cost, rather than pass it on to the public at this most difficult time, but we cannot do so indefinitely and we cannot do it without some cooperation from government. We urgently ask government to look again and extend the refund to retailers.”

According to the budget, the diesel fuel levy refund will be extended to manufacturers of foodstuffs for a period of two years, from 1 April 2023 until 31 March 2025, to limit the impact of the energy crisis on food prices.

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Relief does not go far enough

Deloitte noted after the budget that the relief for business does not go far enough and Ramatlhodi pointed out that the extension of the diesel fuel rebate to businesses in the food manufacturing sector.

Ramatlhodi also argues that the refund needs to be extended to other critical industries that are currently using diesel to counter the effects of loadshedding, such as telecoms, as the system was conceived to help primary industries that use diesel off-road to remain competitive.

At the prebudget event, Phozi Mbiko, senior manager for customs and excise at Deloitte Africa, said industries that may be considered for inclusion include telecommunications and those that deal with perishable essential goods.

“The industries dealing with perishable essential goods also use diesel to sustain round the clock refrigeration storage for their products, while the telecoms industry uses diesel to maintain connectivity, a critical economic activity, during loadshedding.”

Mbiko said in the wake of the increasing levels of load shedding, other industries are losing billions in revenue and it has resulted in some companies in industries not included making significant investments in procuring diesel to operate generators.

“The more frequent loadshedding occurs and the longer it lasts, the more diesel these companies must consume to continue to operate and contribute to the country’s gross domestic product. We believe this presents a case for these companies and industries to insist on some form of relief.”

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Other beneficiaries of diesel levy refund

In addition to farming, forestry and fisheries, and mining, the system also benefits vessels owned by the National Sea Rescue Institute, coastal patrol vessels and vessels conducting research, as well as locomotives used for rail freight and vessels that service fibre optic telecommunication cables along the coastline, harbour vessels from the National Port Authority and vessels used by the in-port bunker barge operators.

Electricity generation also benefits, with qualifying plants listed in Schedule 6 of the Customs and Excise Act. The system refunds, upon successful application, a portion of RAF and fuel levies according to formulas predetermined and published by Sars.

The criteria and support for the refund process is strictly monitored according to set guidelines by Sars and a claimant must show not only that diesel was purchased but that the diesel was used for qualifying activities.

According to figures from National Treasury for the financial year 2022/23, the fuel levy generated R89,1 billion for the fiscus, which makes a significant contribution to government spending.

Mbiko said if the system is successfully administered to a broader base of beneficiaries, what Sars loses in revenue can be recovered through higher taxes from companies that remain profitable in spite of rising diesel input costs.