The 2025 budget proposals announced that the fuel industry in the Republic of South Africa (“RSA”) has increasingly shifted from local manufacturing to importing refined petroleum products such as petrol, diesel, illuminating kerosene and aviation kerosene (“fuel levy goods”).

Companies involved in the importation of such fuel levy goods have highlighted the challenges they face in moving the imported products through the national multi-product pipelines.

SARS, seeking to resolve these issues, has proposed a review of the legislation governing the fuel industry to align it with the changes in the industry and to facilitate the movement and storage of such fuel levy products.

SARS recently published draft amendments to Parts 1, 2A, 5A and 5B to Schedule 1 of the Act to allegedly refine the classification and regulatory framework for petroleum and related products, with the cited reasons being the evolving industry practices, environmental considerations, and applicable national and international standards. These proposed amendments are alleged by SARS to align with fuel industry changes, promote standardisation through recognised specifications (including SANS, ISO and ASTM), and respond to industry requests for clearer product differentiation. In addition, these amendments are also aimed by SARS at improving the accuracy of tariff classification and providing clarity and certainty for taxpayers.

While it is moot whether the proposed changes achieve the stated objectives, traders in solvents used for mining and other industries will unfairly be caught in the widening of the net proposed by SARS.

One of the proposed amendments is the substitution of Additional Note 1 in Chapter 27 of Section V to Part 1 of Schedule No. 1 to the Act. This proposed amendment includes the introduction of Additional Note 1(m), which reads as follows:

“(m) "Specified aliphatic hydrocarbon solvents", being products intended for use, advertised for use, put up for use or otherwise marketed or disposed of for use as solvents or for other general uses.

Distillation:

• Initial boiling point exceeding 195°C
• Final boiling point not exceeding 290°C”

Additional Note 1(ij) currently provides for "Specified aliphatic hydrocarbon solvents" (“AHS”). In terms of this Note, the current Initial boiling point (“IBP”) for AHS products must exceed 206°C. By virtue of this, many AHS products which are used as extraction diluent solvents (i.e., chemicals) in mining are currently classified in tariff subheading (“TH”) 2710.19.90. This TH does not attract Excise duties or fuel levy. These products are generally imported in bond and exported into Africa.

Excise duty, fuel levy and Road Accident Fund (“RAF”) levy are envisioned to be imposed on fuel products intended to be consumed within RSA, with Excise duty also being imposed if goods are consumed in any of the other Southern African Customs Union (“SACU”) Member States. The solvents are exported out of SACU and are chemicals as opposed to fuel levy goods intended to be used on roads. The purpose of collecting the RAF Levy is to fund the RAF, which compensates victims of road accidents, of which mining solvents exported outside of SACU do not contribute to the accident rate on RSA roads.

The proposed amendment will bring chemicals exported outside of SACU into the Excise duty, fuel levy and RAF levy category and impose duties and levies on goods to which these duties and levies were not intended to be imposed/or on which products such duties and levies should not be imposed.

The amendment will see the goods being classified in TH 2710.19.39, which will subject the goods to:

• Excise Duty (Part 2A, item 105.13.21) – 3,817c/li
• General Fuel Levy (Part 5A, item 195.13.21) – 416c/li
• RAF Levy (Part 5B, item 197.13.21) – 225c/li

The above amounts to roughly R6.45 per litre. This means that R6.45 per litre will be added to these goods, despite these goods not being fuel levy goods intended for SACU. 

The proposed amendment is indicated as being introduced to align RSA with international standards but instead creates an anomaly whereby the same product on the same tariff line would bear R6.45 per litre through Durban and under 4 cents through Walvis Bay, which is an invitation to route imports around RSA. Furthermore, many countries do not impose the same levies on mining solvents (i.e., chemicals).

The proposed amendment will seriously affect the viability of RSA traders and will have an unintended negative impact on the commercial viability of these entities and the RSA economy as a whole, resulting in a net loss to the fiscus.

The proposed amendment will realise some of the objectives sought to be achieved (e.g., refine classification, improve accuracy of classification, promote standardisation through recognised specifications, provide clearer product differentiation and clarity and certainty to taxpayers), but at what cost will this be realised (i.e., non-alignment with international standards, negative commercial impact and levies being imposed on unintended products).

Further engagements are required on the proposed changes and the form in which these changes must be made, considering the greater implications to avoid unreasonable and irrational outcomes!