Billion-Rand Tax Gap: Offshore Bunkering Operations Challenge SARS

The Eastern Cape High Court has revealed a gap in South African tax law pertaining to bunker activities. The South African Revenue Service (SARS) claims this loophole has resulted in billions of rand lost to illegal bunkering. The case in focus involves a tax dispute with Heron Mauritius and its South African subsidiary. This issue has highlighted the inadequacies in tax regulations governing bunkering operations. SARS's knowledge of the operations came late, and Heron contended that compliance with SARS's directives was not feasible due to a lack of clear regulations. The financial implications are significant, with monthly losses estimated at around R300m and a cumulative fiscal impact of approximately R7bn. This situation emphasizes the urgent need for legislative clarity to prevent revenue leakage and ensure proper taxation of bunker activities.

Source: https://www.businesslive.co.za/bd/

The tax dispute emphasizes a lack of clear regulation for specific bunker operations, like those Heron's conducted, that aren't covered by existing legislation. Heron sold marine fuel, or bunkers, for foreign-going vessels at Algoa Bay, which they argue shouldn't attract taxes since the fuel is transferred between ships offshore. There's a regulatory gap surrounding ship-to-ship fuel transfers within designated areas of the port for consumption by vessels in international waters.

Heron argues that the fuel transferred between ships offshore should not attract taxes because the operation takes place in international waters, where typically, national tax laws do not apply. This type of activity, often categorized as "bunkering," is considered part of international maritime operations and is usually exempt from domestic taxation to support the free passage of international shipping.