Bunkering tax dispute highlights gap in legislation
The Eastern Cape high court has identified a gap in tax legislation concerning bunkering activities, as the SA Revenue Service (Sars) estimates that the loss to the fiscus from illegal bunkering runs into billions of rand.
The tax agency is involved in a tax dispute with Heron Mauritius, a Mauritian firm, and its SA subsidiary Heron Marine. The two companies have been conducting bunker marine fuel operations in the Port of Ngqura in Algoa Bay, Gqeberha, since October 2020.
Sars told the court that it had no knowledge of Heron’s activities until late 2022. Heron’s defence was that it was impossible to comply with Sars’ directives without clarity on tax regulations in the sector.
Judge Denzil Potgieter said Heron’s bunkering operations in SA were extensive in scope.
“Applicants’ (Heron’s) counsel indicated from the bar that it counted among the biggest of such operations worldwide. The estimated loss presently being suffered while the operations are interrupted is stated to amount to approximately R300m per month,” the judgment reads.
“Sars has estimated that the loss of revenue suffered by the fiscus amounts to approximately R7bn. Suffice it is to say that this unwholesome situation would in all likelihood have been averted if the applicants had approached Sars for clarity and guidance prior to and not two years after the commencement of the bunkering operations.”
Heron approached the court, asking it to set aside Sars decision to issue the company’with a detention notice in September, but the court dismissed the application, saying the case was “moot”. While Sars detained the vessels, it allowed Heron to continue operating but they were prohibited from leaving the territorial waters of SA.
The industry was up in arms in September when Sars confiscated several vessels. This saw supply of fuel at Algoa Bay all but shut down as the tax agency detained five vessels including five bunker barges.
Before this, in July, Sars reached out to the sector, highlighting that marine fuel cargoes obtained from foreign countries were being sold as bunkers without being taxed as imports.
When Sars detained the vessels, commissioner Edward Kieswetter said the agency had engaged with the fuel industry from 2016 to ensure compliance with legislation concerning the importation, trading and other operational activities of fuelsupplying vessels.
The industry’s argument, as reported by the Financial Mail in January, was that SA was getting a bad reputation over the confiscation of the vessels.
The Eastern Cape high court said there was a legal quagmire in SA’s tax laws that Sars had to attend to.
“According to the applicants this is impossible to comply with until all the uncertainty surrounding the regulatory requirements applicable to their somewhat novel bunkering operations as well as the other outstanding issues between the parties such as the applicability of local tax levying laws, have been resolved,” Potgieter said.
“There is no need to decide
this issue in the present proceedings. It is, however, worth noting, en passant, that there does appear to be some uncertainty concerning the regulation of the specific bunkering operations conducted by the applicants... There is a lacuna in the act and it appears also in the rules, in that neither covers the type of operations that were conducted by the applicants.”
Some of Heron’s operations include the actual sale or supply of marine fuel, also referred to as bunkers. The company sold marine fuel to foreign-going vessels passing through Algoa Bay on their onward journeys to foreign destinations.
These vessels were basically refuelling in Algoa Bay. The fuel was stored on board chartered tankers or bunker vessels based in Algoa Bay and was supplied by the bunker vessels, in designated areas within the port through ship-to-ship transfers, to the foreign-going vessels for consumption in international waters. The industry’s argument is that fuel is transferred between ships offshore and this must not attract taxes.