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Is Fuel VAT Exempt or Zero-Rated in South Africa?

The fuel within South Africa is zero-rated and VAT is not exempt.

This is particularly true of:

  • Petrol
  • Diesel
  • Illuminating paraffin
  • Aviation kerosene (jet fuel)

What Does “Zero-Rated” Mean?

  • Zero-rated products can be taxed with zero percentage VAT.
  • Vendors may still get in-put VAT on the costs associated with the supply.
  • This is different from VAT-free goods that are VAT-exempt, meaning sellers are unable to claim input VAT.

Why Is Fuel Zero-Rated?

  • Fuel is regarded as an important commodity and is particularly important for:
    • Public transport
    • Logistics
    • Households with low incomes (for paraffin)
  • Zero-rating reduces inflation by preventing the cost of fuel from increasing further.
  • Vendors profit by getting input VAT which improves cash flow.
  • The state continues to collect significant fuel taxes through fuel levies and VAT losses are compensated.

Are All Fuels Zero Rated?

Not everything:

  • Zero-rated: Petrol, diesel, illuminating paraffin, jet fuel
  • Rated standard at 15 percent Lamp oil as well as other kerosenes not used for lighting or heating purposes.

Key Takeaways for Businesses and Consumers

  • Consumers pay no extra 15 percent tax on gasoline.
  • Retailers of fuel Do not tax VAT for sales but could claim VAT input on operating expenses.
  • SARS earns money through taxation on fuel but not VAT on fuel.

Example:

If a logistics firm purchases 10,000L of diesel for R15/L:

  • Total = R150,000
  • VAT charged = R0
  • The company is able to make a claim for the input tax on any related costs (e.g. storage and transportation equipment).

Have There Been Efforts to Change This?

Yes. In the year 2018 the government was considering removal of this zero rate to increase revenue, but received a backlash from the public over the possibility of inflationary effects.

In the year 2024, fuel remains in the zero-rated category however the issue may come up in the future budget proposals.

FAQs

Q: Does VAT get added to diesel or petrol when you pump it?  A: It’s not true. These fuels are tax-free and therefore no VAT is applied at the time of sales.

Q: What if a company can claim VAT on fuel-related costs?
A: Yes. Even though fuel is tax-free and businesses are able to get input VAT for qualifying expenses.

Q: Do you think that zero-rating is the same thing as the VAT exemption?
A: No. Zero-rating permits input VAT claims but exemptions are not.

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