Sars and Treasury ask top court to overturn ruling on minister’s VAT powers

The South African Revenue Service (Sars) and the National Treasury on Wednesday asked the Constitutional Court to overturn a Western Cape High Court ruling that stripped the finance minister of powers to adjust the VAT rate before receiving parliamentary approval, warning that without the mechanism the government could be forced to borrow more to deal with immediate revenue shortfalls and fiscal pressures.

The apex court heard arguments in the DA’s challenge to section 7(4) of the Value-Added Tax Act on Thursday before reserving judgment.

The case arises from the DA’s successful challenge in the Western Cape High Court to section 7(4), which allows the finance minister to determine an altered VAT rate before parliament approves the necessary legislation.

The DA is seeking confirmation of the high court’s declaration that the provision is unconstitutional, arguing that the constitution reserves the power to impose taxes to the legislature and that this power cannot be delegated to the executive. The challenge followed the government’s recent attempt to increase VAT from 15% to 15.5%.

The high court declared section 7(4) inconsistent with the constitution. The Constitutional Court must now determine whether to confirm that order.

Counsel for the DA, advocate Ngwako Maenetje, argued that the power to tax was among the most intrusive powers exercised by the state and was deliberately reserved for legislatures.

He argued that the question was not whether the Treasury or the finance minister had the necessary expertise to make decisions about taxation, but whether the constitution permitted the legislature to transfer that authority to the executive.

The DA’s position is that a change to the VAT rate amounts to the exercise of the power to tax and must therefore be determined by parliament.

Sars and the finance minister, however, argued that the high court had adopted an overly rigid approach to the delegation of legislative and taxing powers.

Advocate Wim Trengove, for Sars, told the court that the DA had pleaded two specific grounds of constitutional attack: that parliament may not delegate plenary legislative powers and that the power to tax may not be delegated.

He argued that both propositions were framed as absolute constitutional prohibitions.

According to Trengove, the DA had not pleaded a separate challenge based on the multifactor balancing approach set out by the Constitutional Court in New Africa Investments, which is used to determine whether a particular delegation of legislative power is constitutionally permissible.

The New Africa case is central to the dispute because it established that there is no absolute prohibition on parliament delegating legislative powers. Instead, the constitutional validity of a delegation must be assessed contextually, through a balancing exercise that considers factors such as the nature and extent of the power delegated and the safeguards and controls surrounding its exercise.

Trengove argued that neither Sars nor the minister had been called upon in the pleadings to present evidence dealing with the safeguards, limitations and other considerations relevant to that test.