Diplomats’ duty-free booze and smokes ruse comes to an end

06 October 2023 - 13:16 By TimesLIVE
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Duty-free alcohol is cheaper because it does not include the cost of 'sin taxes'. Some diplomats have been profiting from this.
Duty-free alcohol is cheaper because it does not include the cost of 'sin taxes'. Some diplomats have been profiting from this.
Image: 123RF/ stockfotocz

South African Revenue Service (Sars) commissioner Edward Kieswetter welcomed the Constitutional Court ruling allowing government to stop diplomats from buying tobacco and alcohol duty-free and reselling the products for profit.

Sars estimated the fiscus was losing about R100m a month due to this trade on the black market.

Unlimited amounts of the products were able to be bought by diplomats without the added “sin taxes” normal citizens pay, leading to the plan by government to impose a quota system. An investigation by the department of international relations and co-operation found one diplomat spent R36m in three months on duty-free alcohol, the Sunday Times reported in 2021.

The practice saw then-finance minister Tito Mboweni announce 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 duty-free retailers.

Kieswetter said on Friday Sars had engaged duty-free shops to make them aware of the abuse of duty-free products by people 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.

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 approved the quota system, and it was due to come into operation in July 2021. However, a month before the amendments were to come into operation, four retailers, including Nu Africa Duty-Free Shops, brought an application in the high court challenging the constitutionality of the minister's powers to amend the schedules to regulate trade, as well as the process the minister followed.

Retailers argued the process was arbitrary, irrational and procedurally unfair. The high court found in favour of the retailers and determined the process was unfair and the legislative provisions given to the minister were unconstitutional.

This was overturned this week when the Constitutional Court agreed with Kieswetter’s argument that the legislation was not unconstitutional as the executive authority needs the agility to act quickly to curtail abuse, and parliamentary oversight was not excluded.

The ConCourt found: “These amendments to the schedules are necessary for smooth fiscal lawmaking 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.

“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 Act and the VAT Act. Parliament’s delegation promotes co-operative governance and enhances efficient governance, both constitutional imperatives. Parliament made the conscious choice that the prevailing circumstances dictated the lawmaking work in the form of amending the schedules be best left to the expertise and proximity of the executive.”

In the circumstances, the court said there was nothing constitutionally impermissible with that.

“This is especially so since parliament retains sufficient oversight.”

The apex court also confirmed the decision to impose a quota system was not arbitrary, irrational and procedurally unfair. Rather, faced with widescale abuse, it was incumbent on the executive to curb the abuse and introducing a quota system was a legitimate objective.

The court also ruled proper notice had been given to the industry.

Kieswetter said: “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 ... [it] will act within the parameters of the law and with utmost regard to the constitutional duties we willingly endorse.”

TimesLIVE


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