Exit charges on taking money out of SA ‘not a tax’
04 March 2015
Posted by: Author: Franny Rabkin
Author: Franny Rabkin (BDlive)
The "dominant purpose" of charging people when they move their money out of SA was to discourage them from doing so; it was not a tax, said the South African Reserve Bank in the Constitutional Court on Tuesday.
Although relaxed considerably in recent years, SA’s exchange control regime has been criticised for stifling innovation, scaring away investment and has been called a relic of an authoritarian era, particularly since the regime was in part motivated by a peak of emigration following the Sharpeville massacre in 1960.
The 10% "exit charge" on the export of capital — which entrepreneur Mark Shuttleworth has fought all the way to the Constitutional Court — is no longer in place. But at stake for the fiscus is the risk of multiple claims for about R2.9bn that was raised through exit charges from 2003 to 2010.
The Constitutional Court was hearing an appeal against a Supreme Court of Appeal judgment in favour of Mr Shuttleworth, which ordered the Bank to pay back a R250m exit charge imposed on him as it was invalid.
Central to the Supreme Court of Appeal’s judgment was that the exit charge was a tax, which in terms of the constitution can only be imposed via a "money bill", passed by Parliament. It could not be imposed through regulation, passed by the finance minister..
Defending the appeal court’s judgment, counsel for Mr Shuttleworth, Matthew Chaskalson SC, said it was a founding principle of democracy that the executive could not itself raise revenue, but was "dependent on the taxing power of Parliament which is democratically accountable to the tax-paying public".
But counsel for the Reserve Bank, Jeremy Gauntlett SC, said the levy was not a tax but rather a "regulatory charge" — like e-tools or a fee to fish for crayfish. To determine whether a charge was a tax, the court had to look at its "dominant purpose", he said.
In this case, the dominant purpose was not to raise money for the fiscus but was a deterrent, to make people think twice before they took their money out of SA. "In this country, capital outflows are scary. If they happen quickly, they are very dangerous.".
Counsel for the minister of finance, Patric Mtshaulana SC, added that section 9(4) of the Currency and Exchanges Act empowered the president to promulgate revenue-raising regulations. If this was unconstitutional, then the answer was to strike down the section, he said.
But Mr Chaskalson said the constitution went "broader" than just taxes, referring to "taxes, levies, duties or surcharges". What all these categories had in common was that they raised revenue for the fiscus.
"The 10% exit levy (was) unconstitutional and invalid because the levy operated as a revenue-raising mechanism that circumvented the processes prescribed both in the constitution … and the act," said Mr Chaskalson.
Gilbert Marcus SC, lead advocate in Mr Shuttleworth’s team, gave six arguments why the imposition of the levy was unconstitutional, including that it was unconstitutional to deprive someone of his property, other than by way of a law of general application — not a decision by the minister or a policy.
Judgment was reserved.
This article first appeared on bdlive.co.za.