BETWEEN DROUGHT AND DIESEL, SA FARMERS ARE HAVING IT HARD
In a recent article (“Farmers have their ‘backs to the wall’”, July 20) the Business Day reported that due to the devastating successive droughts in the past three years, over 42% of SA’s commercial farmers “have their backs to the wall” and are having to consider shutting down their operations and selling their farms. This will lead to massive job losses and will affect food security enormously. It will also stagnate the industry’s efforts to facilitate emerging black farmers, as many potential mentors and facilitators would be forced to close shop. AgriSA, an industry organisation representing commercial farmers, is quoted as calling for immediate intervention from the government and banks until farmers can generate profits again.
From a customs & excise perspective, government has an immediate and obvious avenue to ease the burden of farmers, and help cash-flow and profit generation. In order to encourage primary production, such as farming, SARS provides a refund on the fuel and RAF levies charged on diesel to qualifying farmers, foresters and miners in terms of Part 3 of Schedule 6 to the Customs & Excise Act (“the Schedule”).
The Diesel Rebate is extremely important for the viability of commercial farming. This was illustrated earlier this year when Grain SA, an organisation representing almost 10 000 farmers, briefed the Department of Agriculture, Forestry and Fisheries on the impact of the current drought, which is the worst drought SA has faced since 1992. Grain SA said that the issue of Diesel Rebates was “a sore point” and emphasised the importance to the county’s food security of ironing-out administrative issues holding up payment of Diesel Rebates in some provinces.
In order to be eligible for the Diesel Rebate, however, SARS insists on onerous record-keeping requirements in the form of purchase and sales invoices and comprehensive logbooks that are required to be kept in respect of both the storage and use of fuel supplied to each vehicle and piece of equipment. The level of detail required by SARS in the logbook includes: details on the source of the diesel; date of purchase, storage and use; capacity of diesel storage tanks; opening and closing balance of diesel in the equipment and storage tanks; specifics of the equipment; opening and closing meter readings of distance, duration, or speed; the specific activity eligible for diesel rebates and location the activity took place; and details relating to any non-eligible operations performed by the equipment.
Unsurprisingly, farmers have found themselves struggling to comply with this level of detail, and many have had their Diesel Rebates reversed on that basis when audited by SARS, and slapped with penalties and interest on top of that.
Prior to April 2013, the Schedule provided that SARS could allow 80% of the Diesel Rebate when records were not sufficiently kept by a farmer (Note 6(h)(vi) to Schedule 6). The 20% reduction was deemed sufficient to cover any potential non-eligible activities that the fuel may have been used for. This was a much more practical and flexible system which took account of the real-world difficulties facing farmers, such as: the impracticalities of ascertaining exact usage figures for each activity on each date; legacy equipment that is not fitted with gauges to record the required information; and the training and sophistication needed to fully understand and strictly comply with the recording requirements. Government amended the Schedule, however, and from 1 April 2013 no discretion is allowed. If the logbook does not comply strictly with all the detailed requirements it is disregarded and the rebate denied, irrespective of the efforts the farmer has exerted to comply in good faith.
Government seems to have recognised the value of the previous discretion, as it recently amended the Schedule on May 26 to support small-scale sugarcane growers by re-introducing the 80% eligibility for certain sugarcane farmers who have failed to keep the prescribed logbook information. While we welcome this amendment as a move in the right direction, we have noted in a previous article that the small-scale sugarcane growers will by-and-large still be unable to take advantage of this relaxation of the logbook requirements due to other technicalities (“Illogical red tape keeps fuel rebates off limits for outsourced firms”, June 24).
What we would like to see is swift legislative reform that introduces a pragmatic and more lenient approach to Diesel Rebates so that the farmers, and other primary industries, are able to fully benefit from such dispensations. This will go a long way in helping many farmers “get their backs off the wall”. As Grain SA put it in their briefing: “it is not fair that the people who have the biggest effect on the country’s food security are having to finance SARS”, and we may add that, fairness aside, it is not sustainable nor economically prudent.
Virusha Subban is a partner at Bowmans specialising in customs, excise and international trade, and Yonatan Sher is a candidate attorney at the law firm