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[2021] ZAGPPHC 38
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Pricewaterhousecoopers Inc and Another v Minister of Finance and Another (25705/2019) [2021] ZAGPPHC 38; 2021 (3) SA 213 (GP); 83 SATC 253 (2 February 2021)
REPUBLIC
OF SOUTH AFRICA
I
N
THE HIGH COURT OF SOUTH AFRICA
(GAUTENG
D
I
VISION, PRETORIA)
CASE
NO: 25705/20
1
9
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
REVISED
IN
THE MATTER BETWEEN:
PRICEWATERHOUSECOOPERS
I
NC
First Applicant
PRICEWATERHOUSECOOPERS
SOUTH
AFRICAN
FIRM
Second
Applicant
And
MINISTER
OF
FINANCE
First Respondent
COMM
I
SSIONER
FOR THE SOUTH AFRICAN
REVENUE
SERVICE
Second
Respondent
JUDGMENT
Kollapen J
[1]
These are proceedings that relate to a constitutional challenge to
the provisions of Section 39(7) of the Value- Added Tax Act
No 89 of
1991 (the Vat Act) which provide for the circumstances under which
the Commissioner of the South African Revenue Services
is empowered
and authorised to effect a remittal of interest levied and paid in
terms of the Vat Act.
[2]
The relief sought in the Notice of Motion reads as follows :-
"
1. Declaring
section 39(7) of the
Value-
Added
Tax Act
89 of
1991
(VAT Act)
to be unconstitutional
and invalid to the extent that it fails to provide
for
the remittal of interest on late
VAT
payments
where, having
regard
to the output
tax
and input
tax
relating
to
the supply
in
respect
of
which interest
is
payable,
the failure
to
make payment
within the prescribed
period
did
not result in any financial
loss
(including
any
loss
of
interest)
to
the
fiscus
and/
or
the
State;
2
Severing and reading-in the following words to
s
39(7)
of the
VAT
Act, for
so
long
as
it
remains in operation with
regard to
interest
(insertions
underlined,
deletions struck
through):
"Where
the
Commissioner
is
satisfied
that
the
failure on
th
e
part
of the person concerned or any other person under the control
or acting on behalf of that person
to make payment
of the tax
within the period
for payment
contemplated in subsection
(1) (a), (2), (3),
(4), (5), (6),
(6A), or (8)
or on the
date referred to
in
subsection (5),
as
the
case may be-
(a)
Was due
to circumstances
beyond
the control
of the said
person, he or she
may remit, in whole or in
part, the interest
payable in terms of this section;
(b)
Was
not due to
an
intent
not to make
payment
or to
postpone
liability
for
the
payment
of
tax,
he
or
she
may
remit, in
whole or in part, any penalty
payable
in
terms of
this section; or
(c)
Did,
having
regard
to
the
output
tax
payable
and
input
tax
deductible in
relation
to the supply
in respect
of
which
interest is
payable,
not result in any financial loss (including
any
loss of interest) to the State, he may remit, in whole or
in
part, the interest payable in terms of this section.''
3.
Ordering that the declaration of invalidity in paragraph 1 above, and
the severance and reading-in in paragraph 2 above, will
not apply
retrospectively to any payment of interest that has already been made
and that has not been disputed or in respect of
which remittal has
not been claimed, or where the taxpayer's claim for remittal thereof
has already been finally determined in
accordance with the applicable
legislation.
4.Declaring
that the First Applicant
is entitled to a full
remittal of
the
interest in
dispute
(i.e.
R20 008 589.99)
in
terms
of
s
39(7)(c) of the VAT
Act
as set out in paragraph
2
above.
5.
In
the
alternative
to
paragraph
4,
directing
the
Second
Respondent
to consider and
determine,
within 30 days of the
date
of
this order,
the
First
Applicant
's
application for
remittal of
interest in accordance with
s 39(7)(c) of the VAT
Act as set out
in paragraph
2 above."
[3]
Both respondents oppose the application.
The facts and the history
of the dispute between the parties.
[4]
The Applicants are related entities and the PWC Partnership (the 2nct
Applicant) provides ongoing professional services (all
being taxable
supplies for VAT purposes) to PWC Inc. (the 151 Applicant) for which
it furnishes tax invoices, based on estimates
of the services
rendered at the end of each month.
[5]
At the end of each financial year, PWC Partnership conducts a
"true-up" exercise by reference to the services actually
supplied, to determine whether it has over- or under-invoiced PWC
Inc. through its monthly invoices.
[6]
PWC Partnership duly conducted that exercise for the financial years
2009 to 2013, and in each of those five years found that
it had in
fact over-invoiced PWC Inc. for its services. The result of the
true-up exercise (i.e. the reduction of the amount charged
to PWC
Inc.) was duly processed for income tax and account ing purposes and
the financial statements and income tax returns for
both entities for
each of the five years in question reflected the correct amounts for
the services in question.
[7]
The Applicants say however that owing to an 'administrative or system
oversight', the true-up results were not processed with
regard to the
declaration and payment of VAT. Because PWC Partnership had
overcharged PWC Inc. in each year, it had also overcharged
VAT on its
services. PWC Partnership ought, therefore, to have issued VAT credit
notes to PWC Inc. at the end of each financial
year, thereby reducing
its taxable supp lies for the year, and reclaimed the overpaid VAT
from SARS. Because it did not process
the true up exercise for
VAT purposes, it did not do so.
[8]
As a result of this failure, PWC Inc. did not pay the VAT that it
ought to have at the required time and PWC partnership paid
more Vat
than it should have and by the same margin as the underpayment of PWC
Inc.
[9]
SARS imposed penalties and interest on the late VAT payments as the
Vat Act obliges it to do. Arising out of this a Voluntary
Disclosure
Agreement ('VOA') was concluded between PwC Inc. and SARS on the 7
November 2014.
[10]
SARS in accordance with the VOA then did the following: -
a)
Issued assessments for the relevant tax periods totalling R 97
988 700.18.
b)
Levied late payment penalties of R 9 798 870.00
c)
Levied interest in the total amount of R 27 390 270.00 .
[11]
Following a request by PWC Inc. for the remittal of the penalties
imposed as well as interest charged, SARS remitted the full
late
payment penalty as well as the interest for 2009 (R 7 381 683.71) but
did not remit the interest for the period 2010 to 2013.
SARS
reasoning was that Section 39(7) of the VAT Act (on which SARS had
relied on in remitting the interest for 2009) had been
amended in
2010 and the effect thereof was to remove the possibility of
remitting interest when there was no loss to the
fiscus.
[12]
PwC lodged an objection against the decision of SARS which objection
was rejected on the 23 August 2018 resulting in the launch
of this
application on 11 April 2019.
The legislative scheme
Levying
of Interest -Section 39(1)(a)
[13]
Section 39(1)(a)(ii) of the VAT Act provides as follows :
"
If any person
who is liable for the payment
of tax
and is required
to make such
payment
in the manner prescribed in section 28 (
1
),
fails to
pay any amount of
such tax
within the
period for
the
payment
of such
tax
specified
in
the said provisio
n
, he shall,
in
addition
to
such amount of tax, pay-
(ii)
Where
payment of the said amount of tax is
made
on or after the
first day of the month following the month
during which the period
allowed for payment of the tax
ended, interest on the said amount
of tax, calculated
at the prescribed rate (but subject the provisions
of
section
45A)
for
each
month
or part
of
a
month
in
the period
reckoned
from the said first day"
[14]
It is clear from the section that it is mandatory for SARS to charge
interest on late payments of VAT and that the peremptory
language of
the section offers no discretion to SARS on whether or not to levy
interest. It is required in all cases where there
is a late payment.
The remittal of interest
[15]
There was a change in the legal regime with regard to the remittal of
interest with effect from the 1 April 2010 and it will
be useful to
set out the position pre and post April 2010
The position before 1
April 2010
[16] In respect of the
position prior to 1 April 2010, section 39(7)(a) provided as follows:
"To the extent that
the Commissioner is satisfied that the failure on the part of the
person concerned or any other person
under the control or acting on
behalf of that person to make payment of the tax within the period
for payment contemplated in subsection
(1) (a), (2), (3), (4), (6) or
(6A) or on the date referred to in subsection (5), as the case may
be-
(a)
(i) did, having regard to the output tax and in respect of which
interest is payable, not result in any financial loss (including
any
loss of interest) to the State; or
(ii)
such person did not benefit financially (taking interest into
account) by not making such payment within the said period or
on the
said date,
He
may remit, in whole or in part, the interest payable in terms of this
section ..."
The position after the 1
April 2010
[17]
From the 1April the amended section 39(7)(a) read as follows :-
"Where
the Commissioner is satisfied that the failure on the part of
the
person
concerned
or
any
other
person
under
the
control
or acting on behalf of
that person
to make payment
of the tax
within the period
for payment
contemplated in subsection
(1) (a), (2), (3),
(4),
(6),
(6A) or
(8)
or on the date referred
to in subsection
(6),
as
the case may be-
(a)
Was
due
to
circumstances
beyond the
control of the
said
person,
he or she may remit, in whole or in
part, the interest payable in
terms of this sectio
n
..."
[18]
It is apparent that the position pre and post April 2010 represents a
significant shift in focus on the basis upon which a
remittal of
interest may be granted. In the pre April 2010 period it was focussed
exclusively on the question of benefit and loss
to the fiscus. A
remittal was permissible where the State did not suffer a financial
loss or where the taxpayer did not benefit
financially.
[19]
In the post Aril 2010 period the focus has shifted to the cause of
the delay and a remittal may only be granted where the cause
of the
delay in making a late payment was beyond the control of the
taxpayer.
The basis on which the
relief is sought
[20]
The Applicants challenge the constitutionality of Section 39(7) on
two main grounds and contend that the section is:-
a)
Irrational
and arbitrary.
They say section 39(7)
is irrational and arbitrary in that it permits the charging of
interest without any right of remittance in
the absence of loss to
the fiscus and
b)
Section 39(7) permits the
arbitrary
deprivation
of
property
and is in conflict with
Section 25 (1) of the Constitution.
[21]
I proceed to deal with the two challenges
Section 39(7) is
arbitrary and irrational
Is Section 39(1) also
under review?
[22]
Section 39 of the Act distinguishes between the circumstances under
which interest is charged and those that apply to the remittal
of
interest. As indicated Section 39(1) which regulates the levying of
interest is cast in peremptory terms with the result that
SARS is
obliged to levy interest where payment of the tax due is made late.
The Applicants have attempted to argue that even though
the relief
sought in the Notice of Motion relates to the unconstitutionality of
Section 39(7), seen in its proper context the challenge
is both in
relation to the levying of interest as set out in Section 39(1) as
well as the circumstances under which the remittal
of interest is
allowed.
[23]
The Applicants, relying on
South African Transport
and
Allied Workers
Union and
Another v
Garvas
and
Others
2012(8)
BCLR
840
CC urged the Court to look
at the section as whole including Section 39(1) as part of the
legislative package that governed both
the raising of interest as
well as its remittal. Even if one accepted the invitation to look at
the section as a whole the provisions
of Section 39(1) stand on a
different policy and legal footing than those of Section 39(7).
Section 39(1) deals exclusively with
the circumstances under which
interest may be charged and lateness is the trigger for the levying
of interest. Whatever reason
the taxpayer may offer in mitigation of
the late payment is not relevant at this stage of the enquiry. Its
relevance arises in
the Section 39(7) determination of remittal. And
so the two relevant parts of the Section that deal with the raising
of interest
and then its remittal stands separately apart from each
other both in structure as well as in the policy and legal basis on
which
they rest, that render a joint overview of their
unconstitutionality problematic and conceptually impossible.
[24]
Therefore and even if one had regard to the section in its entirety
there is no attack on Section 39(1) and given the considerable
difference in what Section 39(1) and Section 39(7) seek to do it
could hardly be permissible to allow the Applicants to argue the
unconstitutionality of Section 39(1) when the papers do not traverse
such a challenge
[25]
An attack on Section 39(1) was not the case the Respondents were
required to meet and they may have had something to say if
that was
the case. It would be erroneous to assume that what the Respondents
have said in defence of Section 39(7) would be mirrored
in their
defence of Section 39(1) if they were properly required to launch
such a defence.
[26]
It is for these reasons that the constitutional challenge must be
confined to what the Notice of Motion says - a declaration
of
invalidity of Section 39(7) that deals with the remittal of interest.
[27]
That the Rule 16 A Notice that mirrors the notice of motion but in
additions says 'as read with Section 39(1)' does not change
the
position at all and cannot through a mere reference to Section 39(1)
form the basis of an argument that that Section is also
under attack
and review.
Irrational
and
arbitrary
The
Vat
system
[28]
South Africa's VAT system has been described as sophisticated with
numerous complex provisions that in the main places considerable
emphasis on the taxpayer as an involuntary tax collector.
[29]
The South African VAT system is an invoice-based system in terms of
which the VAT for each supply of the product or service
is not
calculated individually. The VAT liability for a tax period is
calculated having regard to all the output tax and input
tax in that
particular tax period. The VAT payable by a vendor is levied and
calculated by taking into account the specific sale
and purchase
transactions entered into by each individual vendor during a tax
period. It is not relevant, for determining the VAT
amount payable by
a vendor in terms of section 16(3), whether the VAT levied by the
vendor on a sale transaction or VAT payable
in relation to an
adjustment is deductible as input tax by another vendor .
[30]
In
Masango v The
Road Accident Fund
2016 (6) SA 508
(GJ) at para 38
the mechanics of the South Afr ican VAT system
and the liability for VAT has been considered by our courts as being
a tax imposed
on the supplier of goods or services, and is not a tax
on the recipient.
[31]
For purposes of administering the VAT Act, the VAT Act looks at the
registered vendor in its individual capacity. The VAT Act
does not
contain grouping rules or any set-off rules across separate entities.
Furthermore, the VAT Act does not require a 'look
through' principle
to determine the tax treatment of transactions.
[32]
In
Metcash
Trading
Limited
v
Commissioner
of
South
African
Revenue
Service
and
Another
2001
(1)
SA
1109
(CC)
at para
11
the Constitutional Court described the system in the following
terms: -
"
Vendors are entrusted
with
a
number of
important
duties in relation to
VAT.
First
there
is
the
duty
to
calculate
and
levy
VAT
on
each
supply
of goods;
then
calculate
the output
tax
and
the
input
tax
on
that transaction
correctly; also to keep proper records supported by the prescribed
vouchers, periodically to add up the sum of
output and input taxes
attributable to that period and appropriately deducting the total of
the input taxes from those of the output
taxes; and, ultimately and
crucially, to make due and timeous return and payment of the VAT that
is payable in accordance with
the vendor's allocated tax period.
"...
VAT is
a
multi-stage
tax, it arises
continuousl
y
. Moreover
VAT
vendors/taxpayers
bear
the
ongoing
obligation
to
keep
requisite record, to make periodic calculations of the balance
of output totals over and above
deductible
input
totals
(and any other permissible deductibles)
and
to
pay
such
balances over
to
the
fiscus.
It
is
therefore
a
multi-stage
system
with
both continuous
self- assessment and
predetermined periodic reporting/paying
.
An
even
more
important
feature
of VAT,
particularly in
contradistinction
to income
tax,
is
that
vendors
are
in
a
sense
involuntary tax-collector
.
In
principle vat
is
payable on each and
every
sale; the VAT
percentage, the
details for
its calculation and
the timetable for
periodic
payment are statutorily predetermine
d
,
and
it
is
left
to
the
vendor
to
ensure
that
the
correct
periodic
balance
is calculated, appropriated and paid over in
respect of each tax
period. By like token the regularity of
VAT
payments
on the one
hand
ensures
a
steady
and
generally
more
accurately
predictable
stream of revenue
via
a
multi-staged
taxation that is perceived
as
resting less heavily on the taxpayer, but on the other hand it
does
require a great deal of book-keeping by vendors
and
policing by the revenue
authorities."
[33]
Thus the importance of the Vat system in the overall scheme of the
fiscus, the obligations on the part of the taxpayer to make
due and
timeous returns as well as the power vested in SARS to ensure
compliance with the Act are all interconnected in the overall
success
or otherwise of the VAT system.
The
rationale
for
levying
interest
[34]
The obligation on the part of SARS to raise interest on the late
payment of VAT in terms of Section 39(1) is not the subject
of any
attack in these proceedings but the rationale for levying interest
has arisen quite sharply in the context of the attack
on Section
39(7).
[35]
The Applicants contend that the purpose of interest is to compensate
for loss and not to deter. Our Courts have generally accepted
that
one of the purposes of interest is to compensate the creditor for the
lost opportunity of productively using the money if
it had been paid
timeously.
See
Be/lairs v Hodnett and another 1978(1) SA 1109(A)
at
1145
0-G
[36]
On the other hand the connection between interest and deterrence and
incentivising compliant conduct on the part of taxpayers
has also
been recognised. In
Metcash
at paragraph 23 the Court
referred to the formidable powers of SARS which included the power to
levy interest as aimed at ensuring
proper compliance on the part of
vendors to keep proper records and make timeous payments - a clear
recognition that interest was
one of the means of establishing a
compliant tax system and beyond serving a compensatory function was
also part of the package
available to SARS to deter errant tax
conduct and to incentivise taxpayers to act in accordance with what
the law expects of them.
The change in policy and
law in relation to remittals
[37]
According to SARS the reason for the 2010 amendment was that the pre
2010 position presented practical difficulties in applying
regard
being had 'to the output tax and input tax relating to the supply in
respect of which interest is payable'. It pointed out
that vendors
who were non-compliant had to obtain access to their counterparts VAT
records to prove there was no loss to the State.
Such records were
ordinarily confidential and would require the counter party's
consent except in the case of related entities.
They therefore argued
that besides being impractical the system could work for interrelated
entities but less so for unrelated
entities and was therefore
inconsistent, could lead to disparate outcomes for different
taxpayers and by doing so not promote fairness
or consistency . It
also contended that fairness required that a vendor's liability to
pay interest should not be dependant on
whether the recipient vendor
claimed the input tax on the same transaction .
[38]
What is however clear is that the pre April 2010 position and post
April 2010 represented a policy and legislation shift in
moving away
from remittal of interest based on a consideration of loss to the
fiscus, to a system that focussed on the conduct
of the taxpayer and
in particular whether the failure to pay tax timeously was due to
circumstances beyond the control of the taxpayer
.
[39]
It is against that backdrop that one proceeds to consider the
argument that this shift in Section 39(7) is irrational and arbitrary
.
The irrational and
arbitrary argument
[40]
Our courts have characterised the rationality enquiry as one that is
limited and circumscribed in its scope. In
Law Society
of
South Africa
and Others v Minister
of
Transport
and Another (201) ZACC
25
the court in stating that the enquiry was an objective and not a
subjective one said in relation to its limits that:-
"[T
]
he
requirement
of rationality
is not
directed
at testing whether
legislation is fair
or unreasonable or appropriat
e
. Nor is it aimed at
deciding whether there other or even better means that could have
been used.
Its use is restricted to the threshold
question whether
the
measure
the
lawgiver
has
chosen
is
properly
related
to
the
public good it seeks to
realise
.
.."
[41] It further dealt
with the matters of fairness and proportionality in the enquiry as
follows :-
"The
applicants
further
urged
us
to incorporate
fairness
as
an
element
of
rationality.
Again,
the
applicants
conflate
the
rationality
and
proportionality
standards of
revie
w
.
I
have
already remarked that
fairness is
not
a
requirement in
the
rationality
enquiry.
If
the
substance
of the complaint
is
about
the deprivation
of
fundamental rights, it
would be subject
to the proportionality
requirements
of
s
36
and not of mere
rationality.
"
[42]
In explaining the precise nature of the test such an enquiry
contemplates, the Constititonal Court in
Ronald
Bobroff
&
Partners
inc
v
De
La
Guerre;
South African
Association
of
Personal Injury Lawyers v
Minister
of
Justice and
Constitutional Development
2014 (3) SA 134
(cc) PARAS 6-8
said:-
"The Constitution
allows judicial review of legislation, but in
a
circumscribed manner. Underlying the caution is the
recognition that courts should not unduly interfere with the
formulation and
implementation of policy. Courts do not prescribe to
the legislative arm of government the subject-matter on which it may
make
laws. But the principle of legality that underlies the
Constitution requires that, in general, the laws made by Legislature
must
pass
a
legally defined
test of 'rationality '...
A
rationality enquiry is not grounded
or based on the
infringement
of fundamental rights under the
Constitution. It is
a
basic threshold
enquiry,
roughly to ensure that the means chosen in legislation are
rationally connected to the ends sought to be achieved. It is
A less
stringent test than reasonableness,
a
standard that comes into play
when the fundamental
rights under the Bill of Rights are limited by legislation.
In
those cases the courts have
a
more active role in safeguarding
rights.
Once
a
litigant
has
shown
that
legislation
limits
her
fundamental rights, the
limitation may only bejustified under
section
36 of the Constitution. Section 36 expressly allows only
limitations
that
are
reasonable
and
justifiable
in
an
open
and
democratic society based
on human dignity, equality and freedom"
[43]
And so ultimately the question that arises in the context of this
challenge is whether the means chosen through the vehicle
of Section
39(7) to regulate the remittal of interest is connected to the ends
of achieving an efficient VAT system that requires
the prompt
settlement of tax debts in the overall context of VAT as the Court
alluded to in
Metcash
at para
60.
[44]
The question therefore is not whether the pre 2010 system was a
better system of a fairer one but rather in this part of the
enquiry
whether the scheme can be said to be rational in the sense of whether
the measure introduced by the impugned Section 39(7)
is properly
related to the public good it seeks to realise.
[45]
The Applicant has argued that it is irrational for the fiscus to
retain interest it has levied under circumstances where there
is no
loss to the fiscus. Apart from the practical difficulties associated
with implementing the no loss model, this argument is
largely located
on the view that the only legitimate basis to levy and retain
interest is if there was a loss to the fiscus. The
argument ignores
the other legitimate reason to impose interest - namely as an
incentive and as a deterrent to ensure taxpayers
comply with their
obligations.
[46]
On that rationale the question of loss to the fiscus cannot be
dispositive of the issue as
Metcash
has affirmed that reasons
other than loss to the fiscus justify the levying of interest. On
that basis the same justification of
incentivising taxpayers is
equally applicable to the circumstances under which a remittal of
interest is provided for.
[47]
In addition the regime of loss is located in an understanding that
the defaulting taxpayer is entitled to a remittal because
another
taxpayer has paid more VAT than what was required. This represents a
system that is akin to cross subsidisation between
different and
possibly unrelated taxpayers and stands in stark contrast to the
rationale of incentivising taxpayer conduct. That
such a system was
in place before April 2010 is not of any great significance. SARS has
explained the reasons why that system was
problematic and why it
elected to introduce a new system which the current Section 39(7)
embodies.
[48]
Whether the new system is fair or proportional is not part of this
leg of the enquiry as the Court in
Law Society
made abundantly
clear, except to point out that in the view of SARS which cannot be
gainsaid the new system was intended to introduce
a fairer regime for
the remittal of interest.
[49]
Under the circumstances and for the reasons given the test of
rationality which has been accepted to be a relatively low threshold
has been met and it cannot be contended that a system that triggers a
right to remittal of interest based exclusively on the conduct
of the
taxpayer is irrational. Simply put, if the failure to pay VAT
timeously was within the control of the taxpayer the right
to seek a
remittal is excluded. There can be nothing irrational or arbitrary
about such a system - it accords with the objectives
of the fiscus to
advance an efficient and compliant system of tax collection.
[50]
The rationality challenge to Section 39(7) must accordingly fail.
The arbitrary deprivation
of property challenge
[51]
This part of the challenge to the constitutionality of Section 39(7)
of the Act is grounded in the provisions of Section 25(1)
of the
Constitution which provides that :-
"No
one
may be
deprived of
property
except
in
terms
of
law of
general
application,
and no
law
may permit
the
arbitrary
deprivation of
property.
"
[52]
In summary the Applicants argues that the interest that is levied on
late VAT payments constitutes money which in turn is property
and
that the imposition of penalty interest, therefore constitutes a
deprivation of property. To that extent it argues that Section
39(7)
which prohibits a remittal where there is no loss to the fiscus
constitutes an arbitrary deprivation of property in conflict
with the
guarantee enshrined in Section 25(1) of the Constitution.
[53]
I proceed to examine some of the components of this argument.
Money as property
[54]
In
Chevron
SA
(Pty)
Limited
v
Wilson
t/a
Wilson
'
s
Transport
and
Others
[2015]
ZACC 1
5
;
2015
(10)
BCLR 115
8
,
the Constitutional Court
affirmed the view that while it would be unwise to seek to develop a
comprehensive definition of what would
constitute property, it went
on however to say that 'it cannot be gainsaid that money in hand
constitutes a property interest protected
by section 25 of the
Constitution.'
[55]
The issue underpinning the dispute between the parties is the
approximately R20 million levied as interest and not remitted.
It can
hardly be contended that the interest in question is not property for
the purpose of Section 25 (1),
Was there a deprivation?
[56]
The first question that arises is whether taxation and interest
thereon constitutes a deprivation of property and connected
to that
whether the failure to remit such interest levied constitutes a
deprivation. The Applicant has argued that both taxation
as well as
interest related to that taxation would constitute a deprivation of
property.
[57]
Very few rights can be regarded as absolute or constitutionally
insulated from interference or limitation. The essence of a
rights
framework is the recognition that rights are indivisible,
interconnected and interrelated and the limitation or interference
with one right is necessary to advance another right.
[58]
Thus in the context of deprivation as contemplated in Section 25(1)
of the Constitution our Courts have been clear that not
all
interference with property rights constitute a deprivation of
property. In
Mkontwana
v Nelson
Mandela
Metropolitan
Municipality
2005
(1) SA
530
(CC) at para
32
the
majority held that :-
"Whether
there
has
been
a
deprivation
depends on the
extent of the
interference with
or limitation of use, enjoyment or exploitation. It is
not
necessary
in this case to determine precisely
what constitutes
deprivation.
No
more
need
be
said
than
that
at
the
very
least,
substantial
interference or
limitation that
goes
beyond
the
normal restrictions
on
property
use
or
enjoyment found
in an
open and
democratic
society
would amount
to
deprivatio
n
."
[59]
What would constitute 'substantial interference' would of course
depend on the particular facts and circumstances but at the
very
least must be the kind of interference that must extend beyond what
the Courts described as ' the normal restrictions on property
use in
an open and democratic society'. The Applicants argue that the
obligations imposed by taxation where an individual is compelled
to
pay money (as taxation or interest triggered by the failure to pay)
over to the State would constitute such substantial interference
and
would be a deprivation.
[60]
There are a number of difficulties with this proposition: - Taxes are
very much part of the normal restrictions on property
use. They are
indispensable in an open and democratic society to enable the State
to discharge its obligations towards its citizens.
In
Metcash
the Court emphasized the need for those payments to be made
timeously and diligently to ensure a steady and accurately
predictable
stream of revenue for the fiscus. To suggest that
taxation is somehow beyond what may be regarded as the normal
restrictions on
the use of property is to misconceive the very
essence of a democratic system of government and the mutual
obligations that rest
on State and citizen in such a system.
[61]
Therefore and for the reasons given the argument that taxes
constitute a deprivation is ill conceived. The Applicants however
contend that interest levied by the fiscus is not a tax but a penalty
and if taxes do not constitute a deprivation of property
then
interest must constitute such a deprivation. Again this argument is
flawed for the following reasons: -
a)
The imposition of interest provided for in Section 39(1) has not been
challenged in these proceedings. The challenge is confined
to Section
39(7) which governs the remittal of interest. It is thus not open to
the Applicants to advance an argument that interest
(whatever its
rationale) constitutes a deprivation when the legal basis for the
raising of such interest has not been challenged.
b)
The attempt to distinguish between the obligation to pay tax and the
obligation to pay interest upon the failure to pay tax is
not
appropriate. The tax obligation and the interest obligations, while
separate obligations in law and activated under different
circumstances, are inextricably intertwined. There can be no interest
obligation in the absence of a tax obligation and the rationale
for
having an interest obligation as part of the broader tax model has
been explained - it seeks to contribute to good tax behaviour
on the
part of taxpayers and to incentivise such behaviour. It too is very
much a part of the normal systems of our fiscus and
probably most
other systems in the world. It cannot be considered an interference
in property rights that extends beyond the normal
restrictions on
property use in an open and democratic society and can therefore not
constitute a deprivation of property.
[62]
The High Court in
Pienaar
Brothers
Pty
(Ltd)
v
Commissioner
for
the
South
African
Revenue
Service
and
Another
2017
ZAGPPH
231;
[2017]
4
All
SA
175(GP)
;
2017 (6) SA 435
GP
at
par
110
held in the context
of taxes as follows :-
"In
my view it cannot be argued that all taxes involve
a
"deprivatio
n
"
of
poverty,
in
the
context
of
Section
25(1).
A
State
cannot
exist
without
taxes.
Society
receives
benefit
from
them.
Taxes are not
penaltie
s
.
Neither
can
they
be,
without
any
qualification,
be
regarded as
unjust deprivation of properly
use..
."
[63]
Mindful that the issue before this Court is squarely the
constitutionality of Section 39(7) I must
conclude that
the creation of an obligation to pay tax coupled with an obligation
to pay interest when the primary tax obligation
is not fulfilled does
not constitute a deprivation of property in terms of Section 25 (1)
of the Constitution.
[64]
If the payment of interest does not constitute a deprivation of
property it is even more onerous to suggest that a provision
such as
Section 39(7) that allows for a remittal of interest under defined
circumstances would result in a deprivation of property
when a
taxpayer is unable to bring its claim within those defined
circumstances. This is precisely the case here.
[65]
The framework that allows for a remittal of interest can also be
characterized as part of the normal restrictions on the use
of
property, creating as it does a system that circumscribes the
circumstances under which an errant taxpayer may trigger a claim
for
remittal. Beyond having found that the scheme is rational, it does
not constitute a substantial interference that goes beyond
restrictions on property use that may be described as normal.
[66]
I am accordingly of the view that the provisions of Section 39(7)
does not lead to a deprivation of property as contemplated
in Section
25( 1) of the Constitution .
Arbitrariness
[67]
Having concluded that no case has been advanced that the impugned
section may lead to a deprivation of property, there is no
need to
consider the question of arbitrariness as required in terms of
Section 25(1).
[68]
However and assuming that my conclusion on deprivation is incorrect
and that it can be said that Section 39(1) leads to a deprivation
of
property, I consider briefly the requirement that such deprivation
shall not be arbitrary.
[69]
In
First National Bank of SA
Limited t
/
a
Wesbank v Commissioner for the South
African
Revenue
Services and Anothe
r
, First National Bank of SA
Limited tla
Wesbank
v
Minister
of
Finance
[2002) ZACC
5;
2002
(4)
SA
76
8
[2002] ZACC 5
; ;
2002
(7) BCLR 702
(CC) at par 37
the
Constitutional Court said that a deprivation of property will be
arbitrary if it takes place
'without sufficient
reaso
n
'.
Section 39(1) and 39(7) creates a framework that provides that a
vendor who fails to pay VAT timeously is liable to have interest
levied on the amount concerned and then further provides that such
interest may only be remitted where the late payment was due
to
circumstances beyond the control of the vendor .
[70] It is a scheme that
is sufficiently reasoned and the rationale that an errant taxpayer
who made a late payment under circumstances
that were within his/her
control cannot have interest remitted is far from being an arbitrary
provision.
[71]
The challenge located in Section 25( 1) of the Constitution must also
fail.
Costs
[72]
Even though this is a commercial matter, it does raise a
constitutional matter and there is no reason why the principle in
Biowatch
Trust v Registrar,
Genetic
Resources
2009
(6) SA 232
(CC)
should not apply.
I accordingly do not
intend to make any order as to costs.
Order:-
I
make the following order: -
1.The
application is dismissed
2.
No order is made as to costs
NJ.
KOLLAPEN
JUDGE
OF THE HIGH COURT
PRETORIA
APPEARANCES
COUNSEL
FOR THE APPLICANT:
Adv M JANISCH SC
Adv
M BOSHOP
INSTRUCTED
BY: GIRARD
HAYWARD INC
COUNSEL
FOR THE 1
ST
RESPONDENT
Adv I SEMENYA SC
Adv
N MAYET
COUNSEL
FOR THE 1
ST
RESPONDENT
Adv S BUDLENDER SC
Adv
A HASSIM
Adv
L SIYO
INSTRUCTED
BY: STATE
ATTORNEY PRETORIA
DATE
OF
HEARING: 26
OCTOBER 2020
DATE
OF
JUDGMENT: 2
FEBUARY 2021