The 2025 Budget Speech introduced a targeted but important change to South Africa’s diesel refund system. From 1 April 2026, qualifying on-land users in the farming, forestry, and mining can claim a refund on 100% of eligible diesel on qualifying activities. The previous 80% limitation is eliminated. SARS has also confirmed that, although the change takes effect from 1 April 2026, it will only reflect on the VAT return cycle from May 2026 as part of the system transition.
This is not a broad concession. It is a move back towards the original policy rationale of the diesel refund regime. The system exists to relieve the fuel levy and Road Accident Fund levy burden where diesel is used in off-road or otherwise qualifying primary production activities, rather than ordinary road-based consumption. National Treasury’s stated position is that the removal of the 80% cap is intended to align the system more closely with that original purpose and to simplify administration.
For high-volume users, the additional 20% will directly affect cash flow. That said, the increase in value will attract closer scrutiny from SARS. The risk has grown along with the benefit.
The diesel refund is not governed by general tax principles. It is a statutory rebate system under the Customs and Excise Act 91 of 1964, read with Schedule 6, Part 3. Entitlement depends on strict compliance with the rules in that schedule. If those rules are not met, the claim fails, even if the diesel was in fact used in operations.
Eligibility starts with registration. A claimant must be a VAT vendor and must also be registered for the diesel refund system. SARS’ current policy confirms that VAT registration is a prerequisite to participation in the scheme. The claimant must also be the buyer and the user of the diesel for which the refund is claimed.
The next requirement is that the diesel must be an eligible purchase and must be used in an eligible activity. In the on-land context, the qualifying sectors remain farming, forestry and mining. But diesel only qualifies to the extent that it is used in qualifying activities within those sectors. SARS’ system also requires taxpayers to identify and exclude non-eligible litres. That is why mixed-use environments are a recurring risk area. If diesel is used partly for qualifying operations and partly for non-qualifying functions, the taxpayer must be able to apportion that use on a consistent and defensible basis.
That, in turn, makes record-keeping the real make-or-break issue. SARS requires taxpayers to maintain a clear and verifiable audit trail from purchase to use. In practice, this means being able to demonstrate how diesel is acquired, stored, allocated and ultimately used in qualifying activities, supported by appropriate underlying documentation and reconciliations.
Where operations involve mixed use, the taxpayer must also be able to substantiate the basis on which non-qualifying litres have been excluded. This is not an area where approximations or retrospective reconstructions are likely to withstand scrutiny.
If the audit trail breaks, the claim is at risk. SARS can reverse the refund and charge interest and penalties. The two-year claim window does not fix poor records it only affects timing, not proof.
From April 2026, the benefit becomes more valuable for qualifying farming, forestry and mining users. But the compliance standard does not relax. If anything, the commercial importance of getting the claim right increases. Taxpayers who can show, through reliable records and a clear methodology, how diesel is purchased, stored, issued and used in qualifying activities should be able to sustain the benefit. Taxpayers who cannot should assume that the claim may not survive verification.
Intellectual property disclaimer: The contents of any article published by Pieterse Sellner Erasmus should not be construed as professional legal advice.
Intellectual property disclaimer:
The contents of any article published by TRM Tax Attorneys should not be construed as professional legal advice.
