Oil refiners thrown a bone
Oil refineries have been given the first indication of how government plans to subsidise the long-delayed upgrade to produce cleaner fuel locally. In between the list of tax proposals in this year’s budget is a special proposal for oil companies that own six local refineries.
The refineries face an upgrade bill that they claim would be as high as R40 billion. This will allow South Africa to catch up with fuel standards abroad by producing “Euro 5” diesel with very low sulphur content.
The SA Petroleum Industry Association (Sapia) has been calling for full cost recovery. It wants government to put a new levy on liquid fuels and make motorists pay for the upgrades – probably in the range of 20c per litre.
Treasury has, however, been pumping up the fuel levy to fund the government budget (30c this year and 30.5c last year). The levy increase will give Treasury an extra R6.8 billion.
Treasury is seemingly pushing ahead with an alternative mechanism for the refineries: a special accelerated depreciation allowance that allows them to write off the upgrade costs against taxable income over only three years, which effectively means they pay little tax in those years.
“The proposal by National Treasury is a welcome development,” said Sapia spokesperson Avhapfani Tshifularo.
“At this stage, we cannot fully comment on the proposal since we have not had an opportunity to properly look into it.” He suggested the allowance wouldn’t help much, though. “It must be remembered that the scale of investment is large relative to the income refiners will receive ... meaning that the assessed loss will remain for a good number of years after the plants have been commissioned,” he said.