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, introducing new registration obligations, greater supply-chain visibility and potentially a renewed focus on compliance and substantiation.

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 through 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 as to the records that SARS will ultimately require. This is particularly relevant given that record-keeping obligations remain a critical aspect of any diesel refund claim and a common area of scrutiny during SARS audits.

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 a number of 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 and what the consequences may be if supplier information is incomplete, inconsistent or a supplier fails to register.

While the reforms may ultimately improve the administration and integrity of the diesel refund system, a number of operational details remain to be clarified. Businesses should therefore view the current registration phase as an opportunity not only to prepare for the new system, but also to 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 but also on the clarity provided around record-keeping obligations, supplier participation and the practical requirements for substantiating future claims.

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 and strengthen the integrity of the system. The key challenge will be ensuring that both suppliers and users are registered, while avoiding unnecessary administrative burdens arising from the additional compliance requirements. If implemented successfully, the new system could improve processing times, 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 to 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, 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 and respond effectively as greater clarity emerges on SARS' expectations.

Written by Chetan Vanmali, partner, Amanda Nkwanyana, partner and Pérez Pillay, associate at Webber Wentzel