6 October 2023 – The Commissioner for the South African Revenue Service (SARS), Mr Edward Kieswetter, has welcomed the decision of the Constitutional Court in the matter between Nu Africa Duty Free Shops (Pty) Ltd and Others and the Minister of Finance and Others.
The matter arose when the SARS Commissioner identified and reported abuse in the system where certain diplomats were purchasing duty-free tobacco and alcohol in South Africa and reselling them in the domestic market. These investigations estimated that the fiscus was losing about R100 million per month.
The Minister of Finance then announced a review of the treatment of duty-free shops, which would include a revision of the schedules made under the Customs and Excise Act and the VAT Act that regulate the duty-free retailers.
SARS then engaged the duty-free shops to make them aware of the abuse of duty-free products by persons holding diplomatic immunity and privileges, and to communicate the proposed imposition of a quota system that regulated the sale and purchase of alcohol and tobacco products by diplomats.
To address this abuse, amendments to the schedules to the Value Added Tax Act and the Customs and Excise Acts were published for comment between November and December 2020.
The Minister then approved the amendments to the schedules to the Acts which introduced a quota system, and which were to come into operation on 1 July 2021.
A month before the amendments were to come into operation, the retailers brought an application in the High Court. These applications challenged the constitutionality of the power the Minister has[1] to amend the schedules, in order to regulate trade, as well as the process the Minister followed in amending these schedules. The retailers argued that the process was arbitrary, irrational and procedurally unfair.
The High Court found in favour of the retailers and determined that the process was unfair and that the legislative provisions given to the Minister was unconstitutional.
These two issues were considered by the Constitutional Court, and judgment was handed down.
The Constitutional Court agreed with the Commissioner’s argument that the legislation was not unconstitutional, as the Executive authority needs the agility to act quickly to curtail abuse, and that Parliamentary oversight was not excluded: the Constitutional Court found:
“I agree with the Commissioner that these amendments to the Schedules are necessary for smooth fiscal law-making and to enable the Executive to act speedily and effectively in capping mischief or abuse. Parliament’s involvement under 48(6) of the Customs Act is necessary to make the measures long-term or permanent. In sum, the legislative delegation for the Minister to amend the Schedules is not constitutionally impermissible. [Para 99]
The Executive is in a much better position than Parliament to appreciate the day- to-day needs and demands of administering the matters contained within the Schedules to the Customs and the VAT Act. Parliament’s delegation promotes co- operative governance and actually enhances efficient governance, both of which are constitutional imperatives. Parliament made the conscious choice that the prevailing circumstances dictated that the law-making work in the form of amending the Schedules be best left to the expertise and proximity of the Executive. In the circumstances, I see nothing constitutionally impermissible with that. This is especially so since Parliament retains sufficient oversight. [Para 100]
The Constitutional Court also confirmed that the decision to impose a of a quota system was not arbitrary, irrational and procedurally unfair. The court found that, faced with wide-scale abuse, it was incumbent on the executive to curb this abuse and the objective of introducing a quota system was a legitimate objective.
Regarding the process followed, the Constitutional Court found that proper notice had been given to the industry who had also been given an opportunity to respond. In the judgment the Court referred to the investigation conducted by the Commissioner, the consultations between SARS and DIRCO, the publication of the proposed amendments and the Minister’s review of the proposals received.
Ultimately the Constitutional Court has found that the executive authority must have the necessary authority to respond with speed and agility to curb abuse and is entitled to make amendments that regulate industry through the amendment of the schedules to the Customs and Excise Act. The process followed by the Executive and SARS before the introduction of the quota system was found to have followed a fair and reasonable process.
This judgment exemplifies SARS strategic intent – SARS will act decisively and with speed to curb the abuse and manipulation of the tax and Customs system, and, in doing so, SARS will act within the parameters of the law and with utmost regard to the Constitutional duties that we willingly endorse.
For more information please contact [email protected]
[1] The Retailers sought an order declaring section 75(15)(a)(i)(bb) of the Customs and Excise Act 91 of 1964 (Customs Act) and section 74(3)(a) of the Value-Added Tax Act 89 of 1991 (VAT Act) inconsistent with the Constitution and invalid. These sections empower the Minister to amend the schedules to the Acts.
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