DME Oil Summit

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• DME - Oil Summit

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Context

• National Treasury and the Departments of Minerals
  and Energy and Trade and Industry are responsible
  for setting policy
• SARS administers the legislation, advises the
  Minister of Finance and may make recommendations
  for legislative changes
• In the development of legislation a balance
  should be attained between simplicity and
  certainty

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Tax relief Coal mining operations

• Beneficial tax treatment compared to non-mining
  taxpayers
• Capital expenditure can be deducted in full
  (100) when incurred
• The deduction is ring-fenced to the taxable
  income from the mine
• Any expenditure incurred on prospecting
  (boreholes, survey, trenches) 100 (sec 15(b))
• Expenditure actually incurred and paid to
  discharge all consideration, royalties or
  compensation payable to the community (11hB)
• Any cash paid to company or trusts whose sole
  object is to apply its property for mine
  rehabilitation (sec 37A)
• Mining companies are taxed at a rate of 28

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Tax relief petroleum companies

• Conversion of coal to petroleum and the refining
  of crude oil are processes of manufacture for tax
  purposes
• Depreciation deduction is allowed for the cost of
  new and unused machinery and plant brought into
  use in a process of manufacture over a period of
  4 years
• 40 / 20 / 20 / 20
• Depreciation deduction is allowed for the cost of
  pipelines used to transport natural oil over a 10
  year period on a straight-line basis
• Manufacturers of petroleum, oil refiners and
  distributors of petroleum are taxed at a rate of
  28

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Tax relief Oil and Gas companies

• Companies holding an exploration or production
  right for oil or gas under the Mineral and
  Petroleum Resources Development Act are entitled
  to a special tax dispensation if they conduct no
  trade other than exploration, production or
  refining of gas
• Tenth Schedule to the Income Tax applies
• All expenditure (capital or revenue) can be
  deducted in full when incurred (excluding
  expenditure to acquire gas and oil rights)
• Additional deduction of 100 for capital
  expenditure on exploration and an additional
  deduction of 50 for capital production
  expenditure
• Secondary tax on companies is levied at a rate of
  5 (0 if the current oil and gas rights relate
  to a previously held OP26 right)
• South African companies are taxed at a rate of
  28 and non-resident companies at 31
• Oil and gas companies may conclude a fiscal
  stability agreement with the Minister of Finance
  (agreement entails Minister will guarantee that
  provisions of 10th Schedule will remain in force
  as long as that right is still held by the
  company).

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Tax relief Venture Capital Companies

• Announced in 2008 Budget
• Specific requirements to qualify as a venture
  capital company (VCC) which invests in qualifying
  shares
• Deduction of amounts invested by individuals in
  VCC shares of R750 000 per tax year with overall
  maximum of R2,25 million
• Deduction of amounts invested by listed companies
  and their group companies (limit of 10 of shares
  of VCC)
• Proposed effective date is 1 July 2009

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VAT CONCESSIONS ON FUEL LEVY PRODUCTS

• Fuel Levy goods- VAT charged at 0 (11(h))
• Purchase of petroleum oils or crude for refining
  to produce fuel levy goods- VAT charged at 0
  (11(hA))
• Marked Illuminating kerosene used illuminating or
  heating VAT charged at 0 (11(l))
• Any old order rights continuing in force or
  converted to new order rights VAT charged at 0
  
• Prospecting rights, exploration rights or mining
  rights renewed ito Mineral and Petroleum
  Resources Dev Act, 2002 VAT charged at 0

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Fuel levy products

• FUEL LEVIES (INCLUDING RAF) ACCOUNT FOR 6 OF
  TOTAL
• REVENUE COLLECTION (2008 SARS AFS)
• STRINGENT CONDITIONS APPLY WHEN IMPORTING OR
• EXPORTING FUEL LEVY GOODS,REGISTRATION WITH ITAC
  IS
• REQUIRED
• SARS TAKES CHARGE OF POLICING THE ILLICIT MIXING
  DIESEL
• WITH PARAFFIN TO EVADE PAYMENT OF EXCISE DUTIES

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Table Fuel Taxes Collected By SARS
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INTERNATIONAL BENCHMARK

• In South Africa, taxes on a litre of petrol or
  diesel ranges between 15 to 18
• OECD countries, taxes on a litre of petrol or
  diesel ranges from 10 to 70
• Therefore, SA is in the lower quartile of taxes
  on fuel levy goods

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DIESEL / BIODIESEL REFUND

• The diesel / biodiesel refund system provides a
  refund on the fuel and RAF levies paid on diesel
  / biodiesel by qualifying industries in the
  following categories
• ?? On land
• ?? Offshore and
• ?? Rail and harbour services.

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Primary Production Sectors That Qualify

• On Land
• Off shore

• Farming
• Mining
• Rail
• Forestry
• Electricity Generation Plants
• Commercial Fishing
• Coastal Shipping
• Offshore Mining
• NSRI
• Rail Freight Haulage And Harbour Services

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REQUIREMENTS FOR IMPORTATION OF
FUEL LEVY GOODS

• FUEL LEVY PRODCUTS ARE
• DIESEL
• PETROL
• PARAFFIN
• BIO DIESEL
• Importers must register with SARS as importers
• Importers must be in possession of import permit
  prior to product being imported.
• Import permit issued by ITAC on approval from
  Department of Mineral and Energy Affairs
• Product must be discharged into a bonded
  warehouse on importation.
• All duties must be paid on removal from warehouse
  
• Product must be entered for home consumption in
  terms of Section 38 of the Customs And Excise
  Act

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Export Of Fuel Levy Goods

• All exporters other then the oil majors must be
  registered as licensed distributors
• All exporters must be in possession of export
  permit prior to export taking place
• All exports are duty paid and on proof of export
  being submitted to SARS refund will be
  entertained

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Legislation

• In order to encourage and enable primary
  production in the Republic a refund is offered on
  the fuel and RAF levies charged on diesel and
  biodiesel used in such production.
• GOVERNING LEGISLATION
• Sections of the Customs and Excise Act No. 91
  of 1964, as well as the Rules, have reference
• Section 14(1) deals with coastwise traffic and
  coasting ships.
• Section 75 provides for the refund with effect
  from 4 July 2001.
• Section 75(1C)(b)(i) defines a user of this
  refund.
• Section 75(4A)(b)(ii) stipulates that any refund
  claim of such levies must be submitted within two
  years from the date of purchase of the diesel /
  biodiesel.

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• Section 75(4A)(c) stipulates that any seller of
  such fuel shall furnish the user with an original
  invoice reflecting the particulars, and shall
  keep a copy of such invoice for the time
  prescribed in the notes to the item 670.04.
• Details of the refund measures are contained in
  the Notes to Item 670.04 of Schedule No. 6 to the
  Act.
• Sections of the Road Accident Fund Act No. 56
  of 1996 have reference
• Section 5 - the Fund shall procure the funds it
  requires to perform its functions by way of a
  fuel levy in respect of all fuel sold within the
  Republic.
• Sections of the Maritime Zones Act No. 15 of
  1994 have reference
• Section 1 deals with the definitions in this Act.
  
• Section 5 defines the contiguous zone.
• Section 8 defines the continental shelf.