SARS is stepping in to keep food prices lower in South Africa

The South African Revenue Service (SARS) has clarified the extension of the diesel refund to manufacturers of foodstuffs in South Africa.

During the 2023 budget speech, finance minister Enoch Godongwana announced the extension of a diesel refund system to food manufacturers in light of the current electricity crisis.

SARS said the relief is implemented to limit the impact of power cuts on food prices.

In 2000, the government implemented the diesel refund to provide full or partial relief for the general fuel levy and the Road Accident Fund Levy (RAF) to primary sectors, said SARS.

In South Africa, the cost of petrol and diesel includes various levies and taxes that make up 31% of the total cost, the General Fuel Levy and Road Accident Fund Levy account for the largest portion.

The refund system is traditionally in place for the farming, forestry, fishing, and mining sectors; however, it is now being granted to manufacturers struggling with ever-increasing diesel bills for alternative power supplies.

According to SARS, this took effect from 1 April 2023, with refund payments taking place once the system is developed and will be in place for two years until 31 March 2025.

“SARS will administer the new refund to the extent of 80% of the RAF levy for diesel purchased for use and used in the manufacturing of foodstuffs through the DA66 Excise Refund System,” the taxman said.

“The currently manual DA66 process will be automated in the last quarter of 2023 and is separate from the diesel refund system that is administered through the VAT system by way of submitting VAT 201 returns,” it added.

Food prices have been a point of concern for many cash-strapped South Africans, with food inflation reaching record highs and load shedding adding to the pressure on producers that may pass extra operational costs onto consumers.

Christo Van der Rheede, the CEO of AgriSA, said that the entire agricultural value chain relies on electricity for irrigation, processing plants, and maintaining cold storage facilities – which can easily affect the quality of your meats and vegetables if it experiences disruptions

He said that farmers are forking our billions on diesel from generators and alternative power sources to keep production going.

“Unless measures are implemented, a catastrophe looms for the country. Farming operations will be disrupted as the equipment is damaged due to power failures; the cost of food production will increase as farmers are forced to irrigate at peak prices,” said the CEO.

From an inflationary perspective, StatsSA reported that consumer price inflation in March saw a 14% year-on-year increase for food and non-alcoholic beverages – although the South African Reserve Bank (SARB) has not slowed its rate cycle, consumers are under pressure.

Relief in terms of food inflation is only expected to start cooling off over the second half of 2023, depending on energy and fuel costs.

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SARS is stepping in to keep food prices lower in South Africa