South Africa 19.6.2015 07:00 am

Shuttleworth loses R250m exit levy case

FILE PICTURE: Mark Shuttleworth, South African entrepeneur. Picture: Beeld/Robbie Schneider/GalloImages

FILE PICTURE: Mark Shuttleworth, South African entrepeneur. Picture: Beeld/Robbie Schneider/GalloImages

The Constitutional Court yesterday handed down judgment against South African billionaire entrepreneur Mark Shuttleworth who was challenging a R250 million exit levy imposed by the SA Reserve Bank (SARB).

The judgment concerned the constitutional validity of an exit charge imposed on capital exported out of South Africa and of certain legislative provisions regulating South Africa’s exchange control system.

This was after the minister of finance in 2003 imposed a 10% exit charge on capital exceeding R750 000, in his budget speech.

In the Constitutional Court, the SARB and the minister sought to appeal against an order made in March this year that they should refund the exit charge. Shuttleworth sought to cross-appeal against the finding that the regulations, and certain provisions of the act, were constitutionally valid.

“In the majority judgment … the court granted leave to appeal in the main appeal, finding that even though the exit charge is no longer imposed, the matter is not moot because the state could be exposed to approximately R2.9 billion in potential claims if it is found that the imposition was unlawful,” the Constitutional Court found.

“The court further found the exit charge was not inconsistent with the constitution. The dominant purpose of the exit charge was not to raise revenue but rather to regulate conduct by discouraging the export of capital to protect the domestic economy.”

The court also granted leave to appeal in the cross-appeal but only in respect of the attack on the constitutional validity of the section of the act that enables the making of regulations and the provision in the regulations prohibiting the export of capital without authorisation under certain conditions.

These provisions were found to be constitutionally valid as the broad discretionary powers granted to the minister ensure a “speedy and flexible” approach to the exchange control system and are reasonably necessary to stem the outflow of capital, protect the local currency and safeguard the domestic economy.

The main appeal was upheld and the cross-appeal dismissed and the court made no order as to costs.

In 2009, Shuttleworth applied to the SARB for permission to transfer capital of about R2.5 billion out of South Africa. His request was granted on the condition that he paid the exit charge. Shuttleworth challenged the imposition of this charge in the North Gauteng High Court in Pretoria.

He said the exit charge, as well as various legislative and regulatory provisions underpinning the exchange control system, were constitutionally invalid.

The SARB is arguing that it should not repay Shuttleworth the R250 million exit levy it charged him when he transferred his assets out of South Africa to the Isle of Man in 2009.

He paid the levy under protest and took the matter to court. The Supreme Court of Appeal (SCA) ruled last year that the bank should not have imposed the levy and ordered it to repay Shuttleworth.

The High Court did not find the imposition of the exit charge to be unlawful but declared a number of the Exchange Control Regulations unconstitutional.

The court also held a provision of the Currency and Exchanges Act to be unlawful because it grants the president overly broad powers that allow him to suspend any legislation connected with exchange control. Shuttleworth appealed to the Supreme Court of Appeal.

Sarb and the fiance minister cross-appealed, arguing that the High Court was wrong to find certain provisions of the Act and Regulations constitutionally invalid.

The Supreme Court of Appeal held that the exit charge was unlawful because it was calculated to raise revenue and therefore certain procedures in the Act, and the money Bill provisions of the Constitution, should have been followed.

The Supreme Court of Appeal thus ordered the refund of the charge but overturned the High Court’s decision that certain provisions of the Regulations and Act were invalid.

In the judgment on Thursday, the Constitutional Court held that national revenue of any sort, tax or not, must be raised by way of original legislation passed in Parliament. The court found that the imposition of the exit charge by way of announcement was constitutionally invalid.

 

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