Exclusion from existing fuel rebate system challenges competitiveness of OPL sector

Industry association, OPLASA, has made a formal submission to address an anomaly in the application of an important diesel refund mechanism available to comparable maritime sectors.

SOUTH AFRICA: The Off Port Limits Association South Africa (OPLASA) is seeking to have the sector included in a diesel refund system that is currently enjoyed by those operating fishing vessels, research vessels, patrol vessels and others in local waters.

Under a framework governed by the Customs and Excise Act 91 of 1964, various maritime operators qualify for refunds of certain fuel-related levies where diesel is consumed in qualifying non-road activities. Despite being comparable to the operations undertaken by many of the qualifying vessels, off port limits (OPL) vessels do not currently benefit from the rebate.

Recognising the importance of the issue, OPLASA recently submitted formal representations to National Treasury requesting that the OPL sector be included in the diesel refund system during the current review of the legislation.

“The exclusion appears difficult to justify on any principled policy basis,” says Peter Edwards of Dawson, Edwards and Associates (DEA). The legal firm has been contracted to assist OPLASA with their submission.

“OPL operators conduct maritime activities; consume fuel at sea rather than on public roads, and support international shipping in exactly the manner government seeks to promote through Operation Phakisa and South Africa's maritime development objectives,” says Edwards who contends that there is no reason that OPL operators should not benefit from the system.

Despite operating entirely at sea and consuming diesel in non-road activities, these OPL vessels do not qualify for diesel refund benefits available to many comparable maritime sectors.

Edwards, who has reviewed the nature of the operations conducted by those receiving the rebate, believes that the critical services offered to merchant ships by the OPL sector are very similar to the functions performed by sectors already qualifying for diesel refunds.

“OPL vessels arguably play an even more direct role in supporting international maritime trade and ensuring South Africa remains an attractive service destination for passing vessels,” he adds.

According to figures from OPLASA, the sector provides direct employment to between 300 and 350 people and generates an estimated indirect contribution of over R700 million per year to coastal economies.

In addition, OPL operations create work for a wide range of associated industries including ship repairers, marine engineering firms, ship chandlers, transport companies, warehousing businesses, freight forwarders, bunkering operators, medical service providers and tourism operators.

“Every time an international vessel is serviced offshore instead of bypassing the region entirely, South African businesses benefit,” says Edwards.

Established to advocate for the growth of the sector, OPLASA is confident that the fuel rebate will help position South Africa as a more competitive OPL destination in the region.

“South Africa already offers a professional and efficient service to international shipping. Accessing the relief provided by the rebate, which is already available to several other sectors, will make the local OPL sector even more attractive,” says Andrew Hendrikse, OPLASA Chair.

The maritime industry is highly mobile. South African OPL operators compete directly with service providers operating from regional maritime centres such as Walvis Bay and Port Louis. Every unnecessary cost imposed on local operators erodes South Africa's competitiveness and increases the likelihood that business will migrate elsewhere.

At a time when geopolitical shifts and changing shipping patterns are creating new opportunities for maritime service centres, South Africa should be removing barriers to growth rather than maintaining them.

“South Africa cannot simultaneously pursue maritime growth and maintain policies that disadvantage sectors supporting international shipping. Treating OPL vessels differently from other comparable maritime operators appears inconsistent with the principles of neutrality, fairness and economic efficiency that should underpin tax policy,” says Edwards adding that as government continues to review the diesel refund regime, this is a timely opportunity to correct the anomaly.

“The issue is not about creating a new subsidy. It is about ensuring that similarly situated maritime operators receive similar treatment,” he says. “In a sector that supports jobs, local economic activity, maritime safety and South Africa's ambitions as a regional maritime hub, equal treatment seems not only justified, but long overdue,” he concludes.

For a sector supporting maritime trade, employment, ship servicing, foreign exchange earnings and coastal economic development, extending diesel refund relief is not about creating a new benefit. It is about achieving fairness, tax neutrality and policy consistency in a sector that South Africa can ill afford to disadvantage.

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