BERNARD MOFOKENG: Timing is right to extend fuel rebates to other businesses

Eskom has the privilege of being able to claim a tax rebate on every litre of fossil fuel it buys to manage the baseload energy crisis in the country by burning diesel in its open-cycle gas turbines. In the first five months of the year this amounted to more than 570-million litres of diesel costing R6.4bn.

In terms of the Customs and Excise Act, the power utility reclaims from the SA Revenue Service (Sars) both the fuel levy and the Road Accident Fund (RAF) levy, which together comprise R3.65/l. This alleviates the company’s cash flow pressures to an extent, as is evident in the figures: Eskom claimed diesel rebates of R799m in 2020 and R1.6bn in 2021. This is some of the money it used to keep its business operating.

The state’s reasoning for allowing Eskom and businesses in industries such as mining, farming, forestry, shipping and rail to claim diesel rebates is mainly that they do not use the road infrastructure and therefore should not be required to subsidise industries that do. Similarly, they should not have to contribute to the RAF, which compensates victims of road accidents. However, this reasoning is equally applicable to many other industries that are now forced to burn diesel to keep the doors of their businesses open for trade during the regular load-shedding blackouts. 

In the past few months, South Africans have experienced an unprecedented increase in load-shedding due to Eskom’s inability to match its electricity generation capacity to the level of demand. Eskom has been unable to properly maintain its ageing coal power stations and is unable to bring newer power stations such as Kusile and Medupi properly online or keep them operating optimally. 

Some businesses cannot operate during blackouts and are thus forced to shut their doors. Many others keep operating only by using alternative power sources such as solar panels and batteries or diesel-powered generators. This inevitably means increased costs that are impossible to manage because they have no control over the load-shedding schedule and the price of diesel is constantly increasing. With the increase in global crude oil prices since the war in Ukraine, diesel prices have risen sharply over several months to more than R25/l.

The blackouts have led to businesses in the tourism, hospitality and property sectors having to use diesel generators to keep their businesses running. Even shopping malls have resorted to generators, since restaurants and grocery stores are at risk of stock losses of goods that must be kept refrigerated or frozen. 

It was recently reported that Growthpoint Properties, one of SA’s largest property groups, has had to spend enormous unbudgeted amounts to keep its diesel generators running at its numerous properties during blackouts. This affects many others in the property sector and is eroding their cash flows and profits.

Similarly to Eskom, these businesses do not use the road infrastructure and so should not be subsidising the RAF and other businesses that do use the roads extensively. The finance minister should therefore extend the diesel rebates to other sectors given that Eskom’s inability to keep the lights on is the root cause of their need to burn diesel. This should be fairly easy to implement as these businesses are already registered VAT vendors, and the rebate system uses the VAT system. Should the minister expand the diesel rebate system to other industries and sectors, the SA Revenue Service should have no difficulty managing the resultant increased diesel rebate claims. 

The fuel rebates assist Eskom with its cash flow, and this is equally true of other businesses whose cash flows have been negatively affected by the lack of consistent power provision in SA. Many businesses have been forced to spend money they don’t necessarily have on buying and running diesel generators. It is therefore only fair that they should enjoy the same privilege as Eskom as they suffer through Eskom’s blackouts.

The R3.65/l rebate these businesses would be able to claim would certainly improve their cash flow, thereby increasing their chance of survival. The government should see it as a mechanism to save much-needed jobs. Loss of revenue to the fiscus due to the expanded diesel rebate regime would be minimal in comparison to the effect of the closure of businesses that are unable to cope with new and uncontrolled costs.

In any case, the government should not benefit financially from its inability to effectively manage Eskom, whereas it is morally obliged to help ordinary South Africans survive the crisis. 

• Mofokeng is director and head of tax at CMS SA.