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Proposed changes to diesel rebate threaten marginal mines

14 April 2016   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (Bdlive)

Proposed changes to diesel tax refunds, limiting them to operational mines, will be a death knell for many marginal mines, according to tax experts.

Mining plans and budgets include closure costs that must be incurred after production has ceased. If mines have to incur additional costs after they have ceased to operate, then their operating lives will be curtailed because they have to make provision for these additional post-operation costs, Owen Murphy, a consultant at audit, advisory and forensic services firm SizweNtsalubaGobodo, says.

"It is not clear what is motivating this change in policy to restrict the scope of the concession. During the operating phase, a mine is granted an incentive to enable it to reduce its cost base so that it can remain competitive internationally and to prolong its operating life," Mr Murphy says.

"The policy objective of granting the rebate is being frustrated by introducing this measure as it will force mines to shorten their operating lives," he says.

Many mines find themselves squeezed between the low price of commodities and the steep price increases in labour and electricity costs. Limiting the scope of the rebate is therefore not appropriate and will hasten the closure of marginal mines, he warns.

In a submission to the National Treasury the South African Institute of Tax Professionals (SAIT) also expressed concerns about the interpretation discrepancy about when the diesel rebate may be claimed.

"SARS (South African Revenue Service) ... seemingly intends to require that vendors complete a reconciliation at month-end of the total litres dispensed to equipment to actual litres consumed and litres remaining in the equipment."

SAIT CEO Keith Engel says while the allocation has some theoretical justification, it is "wholly impractical". However, he admits this may be a problem in the law itself as opposed to SARS interpretation.

According to a mining tax expert, SARS is concerned that taxpayers may be claiming diesel refunds early with diesel remaining in the equipment at month-end.

He says it would be impractical for SARS to require that taxpayers stop mining operations on the last day of the month to determine the residual litres remaining in equipment so as to deduct this from the diesel refunds claimed.

SAIT also referred to the treatment of joint ventures and partnerships in terms of the diesel refunds.

There have been instances where SARS has disallowed the refund claims at both the partner and partnership level.

"We understand that SARS disallowed the claim by the partnership because it is not the legal holder of the (mining) right while, in other circumstances, SARS disallowed the claim by the partner holding the right because the partner did not conduct the mining."

The effect was that none of the parties benefited from qualifying activities.

The SAIT submission states that joint ventures and partnerships are common features in the mining industry to comply with black economic empowerment (BEE) legislation.

Other joint ventures exist as a way of commercially sharing risk and reducing the cost of capital. These joint ventures are driven by commercial norms rather than tax avoidance.

"We see no reason why this form of operation should be at a disadvantage ... we suggest that the diesel refund claim be allowed in the hands of the partnership that uses the diesel to conduct the mining," the submission concludes.

Some of the stakeholders have suggested requesting a meeting with the relevant authorities to seek greater clarity.

This article first appeared on


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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