Whether it would be “convenient or useful or expedient” to allow the finance minister to adjust the VAT rate is irrelevant when such a power is unconstitutional, the Western Cape High Court heard on Tuesday.
The court was hearing the urgent case brought by the DA and the EFF to halt the VAT hike, due to come into effect on May 1. At the end of the day’s argument, judge president Nolwazi Mabindla-Boqwana said the court would try to give an order by next week Tuesday.
The DA’s counsel, Michael Bishop, was answering a question from the bench about section 7(4) of the VAT Act, which the DA says is unconstitutional.
The section states that if the minister determined that the VAT rate would be altered, that alteration will come into effect on a date determined by him; and it would apply for 12 months subject to parliament passing legislation giving effect to it.
Mabindla-Boqwana suggested that the purpose behind section 7(4) was a recognition that parliament’s processes take long and the implementation of VAT increases were time-sensitive.
“And so parliament recognised that by introducing 7(4); to say that for an intervening period, with these conditions, we are going to give you [the minister] this power. But this power is not absolute because at the end of it all, we [parliament] have the power to change [things].”
But Bishop said that it was irrelevant what the purpose was behind parliament giving the minister this power because parliament did not itself have the power to do this. The constitution did not allow it.
He said the constitution and several judgments of the Constitutional Court were very clear that it was only the legislature that had the power to raise taxes, according to the age-old principle of “no taxation without representation”.
The DA asked the court to order that the minister’s decision — to increase VAT by 0.5 percentage points in May and another 0.5 percentage points next year — be suspended until a court had, later on, heard and decided on the constitutionality of section 7(4).
The DA also asked for a final order that the Fiscal Framework — National Treasury’s budget outline — be sent back to parliament’s finance committee’s for “reconsideration” because the process that led to its adoption by parliament was shambolic and unlawful.
Bishop said the court did not, at this stage, have to decide finally whether the VAT Act was constitutional, only that there were reasonable prospects that the DA would succeed later. “We submit we have strong prospects of success in Part B,” he said. But counsel for the finance minister, Mahlape Sello SC, said the DA did not have good prospects of success because “constitutionally, what they argue for is non-existent”.
What has happened is the executive has taken over the power of the legislature, even if it’s for a month. Can that be tolerated under our constitutional order?
— Mahlape Sello SC, counsel for the finance minister
Sello argued that the constitutionality of the VAT Act was saved because, though the minister could adjust the VAT rate, it was subject to the approval of parliament, she said. She said while it was correct that only the legislature may impose a tax, this was a case of the minister adjusting the tax rate — a different proposition. But Sello faced a barrage of questions from the bench on this score.
Wasn’t an adjustment raising revenue? What would happen if parliament did not agree to the VAT adjustment the minister wanted, asked judge Andre le Grange? Sello said parliament would then have to enact legislation changing it.
But that would come later, so what would happen in the meantime? the judge asked. VAT would be collected at the rate determined by the minister, Sello answered.
Le Grange said: “What has happened is the executive has taken over the power of the legislature, even if it’s for a month. Can that be tolerated under our constitutional order?” Sello said it could be tolerated, “and it must be tolerated”, because it was constitutional.
The DA and EFF also argued that the process followed by parliament’s two finance committees when it approved reports that accepted the fiscal framework was unlawful. EFF counsel Tembeka Ngcukaitobi SC said the process had “elements of deceit”.
Finance minister Enoch Godongwana had given the public the impression that the increase would be subject to change — because the report adopted a recommendation or a “strict condition” that the hike would be reconsidered and said that recommendation would effectively suspend it.
Yet in Godongwana’s affidavit, the minister said it was always known that the VAT hike was not subject to change, said Ngcukaitobi. “There is a fundamental problem with adopting that approach. It may be politically expedient, but it is deceptive and public power should not be used deceptively,” he said.
He said if a vote had been procured through a bribe, it would invalidate that vote. “That applies equally to a voter that is procured through deception.”
Bishop argued that the problem with the recommendation, which had been the result of an ActionSA intervention, was that the Money Bills Act required the committees to either accept or amend the fiscal framework.
The act “doesn’t allow you to accept the fiscal framework and then say that we might change it later”, he said. Counsel for the Speaker, Karrisha Pillay SC, argued that though there may have been some confusion in the meeting at different points, when it came time to vote there was none.
The idea was to look at alternatives, she said. “If no alternatives carried the day, then the fiscal framework as it was, was the fiscal framework.” But judge Kate Savage suggested there “was no intention to even look at those recommendations”.
She said the speaker and the chair of the committee had been alerted to the problems MPs had with the process in the committee several times, yet it “was pushed through parliament”.
“And what’s quite extraordinary is that it didn’t have to be ... the Speaker, your client, could have slowed the process down and said: ‘Let’s make sure we are all on board. This is an issue of national importance’ ... But that’s not the approach taken, in fact it was the contrary approach. And one has to ask why,” said the judge.
Judgment was reserved.
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