COLD COMFORT FOR FOOD RETAILERS

There are financial and administrative reasons why Sars hasn’t extended the diesel levy refund beyond food manufacturers. But that leaves South Africa’s food retail sector in a grim situation

If the country’s three largest food retailers are determined to get some tax relief on their hefty diesel bills, they may have to go to court to fight for the same relief the South African Revenue Service (Sars) has just provided for food manufacturers. Alternatively, they may prefer to take the easier option and increase food prices to compensate for their diesel expenses.

In his budget speech last week, finance minister Enoch Godongwana announced that the diesel levy refund would be extended to food manufacturers. Food retailers, however, were left out in the cold.

There are significant reasons why Sars is unlikely to give up this great revenue spinner without a fight. For a start, diesel is generating tens of billions of rand for the tax authority each year. In addition, extending the refund to retailers would result in a huge administrative burden.

Sars wouldn’t be able to limit the extension to just the large retail groups, but would have to allow all food retailers, no matter their size, to claim refunds. That would involve detailed oversight by the tax agency, and also require those claiming the refund to be registered for VAT and to keep detailed accounts of their diesel consumption.

The three large retailers are rightly agitated by the grim situation Eskom has created for them. Not only is there the horrendous disruption to their operations, but there’s also the cost involved in purchasing diesel to keep generators going.

Shoprite says it is spending R1bn a year on diesel for generators; Pick n Pay’s annual bill is a tad less, but a still hefty R720m. Spar hasn’t yet disclosed the size of its bill, which is complicated by the mix of wholesale and retail operations as well as corporateand independently owned stores in the group. But it’s likely to be in the same ballpark.

In fiscal 2022 all of this made a significant contribution to the R90.2bn generated by the fuel levy, which covers tax receipts from petrol, diesel, jet fuel and paraffin. Economists reckon petrol and diesel contribute by far the largest portion of that R90.2bn. And, because Eskom’s failure since 2007 has sparked a surge in diesel consumption, diesel is now assumed to be generating similar levels of tax revenue to petrol. Back in the pre-load-shedding days of 2005, the fuel levy generated just R19.5bn for Sars.

Sars tells the FM it cannot provide an update on the 2022 figures until it announces “the revenue outcome at the end of March”.

At present diesel consumers pay R6.02/l in taxes: a general fuel levy of R3.70/l; a R2.18/l contribution to the Road Accident Fund (RAF); and a customs and excise levy and carbon tax of 14c/l.

As it stands, Sars’s proposal will allow food manufacturers to claim back the RAF portion of R2.18/l.

Within a day of Godongwana’s announcement, the three food retailers did something they’ve not done since the competition regulators terrified competitors across the economy from acting in unison: they issued a joint statement expressing disappointment that the refund was not being extended to food retailers.

“The government has accepted the logic that the food industry should not be penalised for the energy crisis, but has only done half the job,” said Pick n Pay’s Pieter Boone, Spar’s Mike Bosman and Shoprite/Checkers’s Pieter Engelbrecht. They pointed out that supermarkets are on the front line in keeping the lights on and the shelves and chillers stacked, so that customers can shop during load-shedding.

“We are doing our best to absorb as much as possible of this cost, rather than pass it on to the public at this most difficult time,” said the three CEOs, before warning that they cannot absorb it indefinitely without some co-operation from the government. “We urgently ask [the] government to look again and extend the refund to retailers.”

The government is now faced with having to balance the implicit threat of further food price increases against a burdensome and costly overhaul of its diesel refund system. So far, there’s no sign of it bending to pressure. But it’s early days.

Bernard Mofokeng, head of tax at law firm CMS, says the latest move is welcome, but minimal. “The refund is not only limited to food manufacturers, but it also only relates to the RAF element of the tax and doesn’t include the R3.70/l general fuel levy.”

Mofokeng has been arguing for a full rebate for the tens of thousands of businesses forced to buy diesel for their generators. The existing refund system is limited to the farming, forestry, fishing and mining sectors.

Mofokeng explains the logic behind the existing system is that people who don’t use the road infrastructure should not be required to subsidise those who do, and also should not have to contribute to the RAF.

A refund of the full tax would improve cash flows and increase the survival chances of smaller businesses, he adds.