Western Cape High Court rules Finance Minister's tax powers unconstitutional
The DA has successfully won the constitutional challenge to the VAT Act when the Western Cape High Court declared the power of the Finance Minister to amend the tax rate invalid and unconstitutional.
Image: Armand Hough / Independent Newspapers
The Western Cape High Court has declared a section of the VAT Act unconstitutional, stating that it improperly delegates legislative powers to the executive.
Judge Matthew Francis issued the verdict on Thursday, affirming that the authority to impose, reduce, or abolish national taxes lies exclusively with Parliament and cannot be transferred to the Finance Minister.
Parliament has been given 24 months to fix the constitutional defect.
This decision was prompted by an application lodged by the DA in April last year.
DA Federal Council Chairperson Helen Zille said yesterday the judgment confirmed their argument that the power to determine taxes cannot be delegated to the executive.
“This ruling vindicates our constitutional challenge and reinforces that there can be no taxation without proper parliamentary oversight.
“It is a case of 'No taxation without representation'. Parliament is the representation of voters, and must be the decision-maker on taxation,” Zille said.
The DA brought the application in April last year after Parliament passed the fiscal framework and revenue proposals, when requests to postpone the proceedings and refer the report back to the Standing Committee on Finance were rejected.
The DA's application followed the announcement by Finance Minister Enoch Godongwana of an impending VAT increase effective May 1.
In court papers, the DA argued that Section 7(4) of the VAT Act empowered the minister to impose, increase, or reduce a national tax - a power the Constitution reserved exclusively to Parliament.
It maintained that the delegation of legislative power to the minister was impermissible regardless of the presence of safeguards or the limited duration of the power.
Godongwana and the SARS Commissioner Edward Kieswetter had opposed the application.
They said the purpose of the section was not revenue-raising but sound fiscal management, rendering the power regulatory in nature and outside the prohibition on delegating taxing powers.
Judge Francis said the power to set the rate of a tax is not a minor or incidental detail.
“The respondents' characterisation of the dominant purpose of Section 7(4) as ‘regulatory’ or ‘sound fiscal management’ does not withstand scrutiny,” he said.
Judge Francis also said there was no suggestion in the text of the provision that its dominant purpose was to regulate conduct or influence behaviour.
“It is, and always has been, a revenue-raising mechanism.”
He also said the Constitution expressly contemplated that the imposition, abolition, and reduction of national taxes were acts that must be performed by Parliament through a prescribed legislative procedure.
“It says nothing, in terms, about the delegation of the power to perform these acts. But the clear implication is that such acts are reserved for Parliament itself; they are not matters that may be assigned to the executive.”
Judge Francis said they did not accept that an amendment to the fiscal framework has the legal effect of invalidating the tax increase announcement.
“The VAT rate remains as announced unless and until Parliament amends the VAT Act itself."
He added that the section of the VAT Act constituted an impermissible delegation of legislative power to the executive.
“It is inconsistent with the Constitution and invalid.”
Francis said the declaration of invalidity was now referred for confirmation or otherwise by the Constitutional Court.
Zille said they brought the application to defend the constitutional role of Parliament and to ensure that decisions affecting the tax burden on millions of South Africans are taken transparently and democratically.
“The judgment strengthens accountability in fiscal governance and ensures that any future changes to VAT must occur through proper legislative processes,” she said.
The EFF, which also mounted a court challenge on the VAT increase, said the ruling affirmed their long-held view that only through a resolution of Parliament can the VAT rate be adjusted.
“The EFF is, therefore, vindicated for its principled argument made in the Standing Committee on Finance, the National Assembly, in the Western Cape High Court and across broader society that there should never be taxation without representation,” said spokesperson Sinawo Thambo.