On 01 August 2024, the South African Revenue Service (SARS) announced the publication of the 2024 draft TLAB which provides the legislative amendments required to implement the more complex tax announcements made in Chapter 4 and Annexure C of the 2024 Budget Review that require greater consultation with the public. One of the key tax proposals contained in the 2024 draft TLAB is the retrospective amendment to fuel products of tariff heading 27.10. SARS has invited comment, which is due by 16 August 2024.
The 2024 draft TLAB also proposes a retrospective amendment applicable to fuel products of tariff heading 27.10 under the Schedules to the Customs and Excise Act, 1964 and the Value-Added Tax Act, 1992 that was not announced in the 2024 Budget. Substantive proposals outside the Budget are exceptional and are made in response to exceptional events, such as the COVID-19 pandemic or the identification of pressing issues that pose a substantial threat to the fiscus. An example of such an issue was the argument advanced by certain multinationals and their advisers in 2004 that dividends could be declared to offshore group companies free of tax.
South Africa is a member of the World Customs Organization (WCO) and a signatory to the Harmonized System Convention (HS) issued by the WCO. The HS is a multipurpose goods nomenclature used as the basis for customs tariffs and for the compilation of trade statistics all over the world. With the implementation of changes in terms of the HS recommended by the WCO for 2002 (HS2002), a new 6-digit tariff structure as well as a new subheading note were introduced to define “light oils and preparations” for the purposes of tariff subheading 2710.11 (now 2710.12). When this change was made at a national level in South Africa, all the national subheadings under tariff heading 27.10 were transposed to tariff heading 2710.11 as “light oils and preparations, irrespective of whether the oils and preparations complied with new HS subheading Note 4, which specifies a threshold for distillation.”
These provisions have been applied according to their obvious intent for many years. More recently, however, a technical interpretation has been advanced by some industry members which would, if accepted, give rise to a glaring absurdity, render certain wording meaningless and pose a substantial threat to the fiscus. Essentially the interpretation advanced is that due to the introduction of a distillation threshold in Note 4 applicable to tariff subheading 2710.11 (now 2710.12), certain products previously classified under such subheading, including those expressly provided for in Additional Note 1(g), conflicted with Note 4 and ought more appropriately to have been reclassified under subheading 2710.19. A review of international practice reveals that these products are classified under subheading 2710.19. Government wishes to bring South African legislation in line with international practice and make it clear that it is not, and has never been, the intention to exclude the relevant products from fuel levies.
It is, therefore, proposed that the bulk of the products that were transposed in 2002 to tariff subheading 2710.11 as “light oils and preparations also be transposed to subheading 2710.19 as they may have a distillation point above the threshold provided for in Note 4 applicable to 2710.11” (now 2710.12). It is further proposed that the transposition be done retrospectively from 01 January 2002, being the date this threshold for distillation was introduced at an international level.