Shuttleworth levy: charge stands, says court
THE Constitutional Court handed down judgment on June 18 2015 in the case of the South African Reserve Bank and Minister of Finance v Mark Shuttleworth regarding the nature of the exit levy paid by Shuttleworth to export capital from SA.
That court also dealt with the broad discretionary powers conferred on the minister of finance to regulate the exchange control system of the country.
During 2001 Shuttleworth emigrated to the Isle of Man on the basis that he wished to free up his funds for investment outside of SA. At that stage the exchange control regulations did not permit Shuttleworth to transfer his assets from this country. He applied to the South African Reserve Bank to transfer an amount of about R2.5bn out of SA and the bank agreed thereto on the basis that he was required to pay a so-called exit charge of 10% of that amount.
Shuttleworth accordingly paid the exit levy of about R250m and was later advised that the exit charge was a tax and had been imposed in a manner not permitted by the Constitution.
Before the matter reached the Constitutional Court, the dispute was dealt with by the North Gauteng High Court and subsequently the Supreme Court of Appeal. The High Court held that the exit charge was lawfully imposed and also decided that a few exchange control legislative provisions were unconstitutional. Subsequently, the Supreme Court of Appeal held that the levy paid constituted a tax and was therefore unlawful and should be refunded.
As a result of the fact that both parties to the case were dissatisfied with the decision of the Supreme Court of Appeal, the case was heard by the Constitutional Court, which delivered its judgment on the matter last month.
After the first democratic election in SA in 1994, the process of relaxing of the exchange control rules started. During 2003 the minister of finance reached the conclusion that the economy had become more resilient and decided that it was appropriate to commence with the relaxation of exchange controls previously in force. The minister confirmed that holders of blocked assets would be required to apply to the exchange control department of the Reserve Bank to remit such funds and that approval would be subject to an exiting schedule and that an exit charge of 10% of the amount to be remitted would be payable.
The Constitutional Court reached the conclusion that the decision to impose the 10% exit charge on persons wishing to export more than R750,000 was a decision made by the minister of finance and not the bank.
The court stated that the minister exercised the power to impose the levy in terms of regulation 10(1)(c) of the exchange control regulations and imposed two conditions on persons wishing to remove funds from SA — namely, that they pay a 10% exit charge on the capital exceeding R750,000 and that the capital exported be subject to an existing schedule.
Deputy Chief Justice Dikgang Moseneke reached the view that the Reserve Bank was only responsible for implementing the policy decision made by the minister of finance and that it had no discretion when giving effect to his decision. The Supreme Court of Appeal had held that the exit levy constituted a tax and in light of the fact that it had not been introduced by way of a Money Bill in accordance with section 77 of the Constitution the levy was unlawful.
The court made the point that the government is not entitled to levy a tax or appropriate public money without due process and the express consent of public representatives and proceeded to analyse the provisions of section 77 of the constitution and particularly the meaning of “national taxes, levies, duties [and] surcharges”. The court made the point that the fact that a charge or levy may be referred to as a tax does not imply that it must be introduced in compliance with the requirements of section 77 of the Constitution.
Judge Moseneke reached the view that the exit charge was not aimed at raising revenue but that its purpose was to restrict the scale of capital exported from SA. Furthermore, the exit charge did not apply to the general population of the country but only to those persons who wished to externalise capital in excess of R750,000. The court recognised that the exit charge generated revenue of some R2.9bn for the government but reached the view that the garnering of income by the Treasury was secondary to the primary purpose of regulating and discouraging the export of capital from SA.
Ultimately the court therefore decided that the exit charge paid by Shuttleworth was not one which fell within the constraints set out in the definition of a Money Bill in the constitution.
The court decided that it was not in the interests of justice to grant Shuttleworth leave to cross-appeal against the decision of the Supreme Court of Appeal on the broad constitutional attack against the exchange control regulations. Despite the court’s conclusion, Judge Moseneke made the point that the specific provisions targeted by Shuttleworth “are well and truly archaic and may very well be at odds with the tenets of our Constitution. The state parties are nudged to take appropriate steps to review the provisions in issue.”
It is interesting to note that Judge Johan Froneman did not agree with the conclusion reached by Deputy Chief Justice Moseneke and therefore handed down his own dissenting judgment. Judge Froneman reached the view that the exit charge raised revenue for the national government and reached the conclusion that it could therefore only be imposed by way of original legislation passed by Parliament. He therefore reached the conclusion that the imposition of the exit charge by announcement in Parliament was constitutionally invalid.
Finance Minister Nhlanhla Nene indicated in his 2015 budget speech that the South African Reserve Bank is in the process of simplifying the exchange control manual and plans to finalise that during the course of this year.
It is hoped that the Reserve Bank will take heed of the court’s views on the provisions contained in the exchange control regulations and that those provisions will be reviewed to take account of the Constitution.
Despite its conclusion, court does find rules ‘archaic’ and ‘at odds with the tenets of our Constitution’ The court made the point that the government is not entitled to levy a tax or appropriate public money without due process
Dr Beric Croome is a tax executive at ENSafrica.