LAW OF TAXATION 411
INTRODUCTION TO TAX LAW
Definition of tax?
- Legislation:
o Income Tax Act 58 of 1962 (ITA): “’tax’ means tax or a penalty imposed in
terms of this Act”
o Tax Administration Act (TAA): “’tax’, for purposes of administration under
this Act, includes a tax, duty, levy, royalty, fee, contribution, penalty, interest
and any other moneys imposed under a tax Act”
- Economics:
o “Taxes are transfers of resources from persons or economic units to
government and are compulsory (or legally enforceable). There is not
necessarily a direct connection between the resources transferred to
government and the goods and services that it supplies.” – Black, Calitz and
Steenekamp.
- Tax Law:
o “a… monetary-based compulsory contribution payable by the public as a
whole or a substantial sector thereof to a government (at a national or
subnational level)”. – Croombe et al.
- Davis Tax Commission:
o “taxes… are general obligations for which:
§ Payments are compulsory and are enforced in terms of legislation
§ No direct benefits accrue to taxpayers in exchange for payments
made and
§ Benefits are returned to groups of people, not identifiable
individuals.”
*My definition: A percentage of money taken by the government from persons earning a
certain amount of money which is then used (or is supposed to be used) to contribute to
and provide for basic services for the general public.
History of tax
- Tax developed simultaneously with the idea of an orderly society and government
(Ancient Egypt and Roman times).
- Virtually all societies impose tax because it is based on the idea of a social contract
o Compania Generalde Tabacos de Filipinas v Collector of Internal Revenue 275
US 87 (1972) para 100: “Taxes are what we pay for a civilized society”
o Davis Tax Commission: “Taxation is a critical part of the social contract
between the state and citizens”
o Pienaar Bros v C: SARS: “A state cannot exist without taxes. Society receives
benefits from them”
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, o PWC v C: SARS: “They are indispensable in an open and democratic society to
enable the State to discharge its obligations towards its citizens”
Constitution of the Republic of South Africa, 1996
Section 55(1): “any legislation” includes tax legislation
Powers of the National Assembly
55. (1) In exercising its legislative power, the National Assembly may-
(a) consider, pass, amend or reject any legislation before the Assembly;
and
(b) initiate or prepare legislation except money Bills.
Section 213(1): National Revenue Fund
Section 228: Empowers provinces to impose taxes but their power is limited insofar as it
depends on the type of taxes, the fact that an Act of Parliament is needed and the way it is
exercised.
Section 229: Empowers municipalities to impose: Rates on property; sub-charges on fees
for services provided by or o.b.o the municipality; and limitations.
Section 77(1): A money bill includes a bill that imposes national taxes, levies, duties or sub-
charges. A money bill: May not deal with any other matter (except subordinate or
incidental); is passed by National Assembly in accordance with section 75 and referred to
NCOP; only Minister of Finance may prepare or initiate a money bill i.t.o section 73(2).
SA RESERVE BANK v SHUTTLEWORTH
Facts
Shuttleworth wanted to emigrate to London, England and take his money with him. In order
to do so, he had to have permission from SARB because South Africa has exchange control
(the manner in which the SA government control the amount of money coming into and
going out of the country) (to ensure that he does take too much money out of the country
and negatively impact the economy). Furthermore, he also needed to pay an exit charge of
10%.
Shuttleworth got the permission and paid the exit charge but was advised that this exit
charge was actually a tax and that it was not charged in a constitutional fashion.
Legal question
Was this exit charge a tax?
If it was a tax it had to comply with sections 75 and 77 of the Constitution, which it clearly
did not in this case. Thus, if it is a tax, he can claim it back from SARB.
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,Ratio Decidendi
The court held that the power to raise taxes is an incident of and subservient to democracy
and that the executive may not impose tax without having legislation giving effect to it.
The court looked at the meaning of the words in section 77(1)(b) in the Constitution
(“national taxes, levies, duties and sub-charges”). Found that these words have a very wide
meaning and is often used as synonyms or interchangeably. Therefore, the word used is
merely a label and not determinative.
In interpreting legislation, it has to be done in light of the context and purpose of the
legislation. Thus, one has to take the fact that it is an “exit charge” into account because not
all instances where revenue is incidentally raised is a tax. We therefore have to use the
seminal test which is the following: If the primary or dominant purpose of the statute is to
raise revenue = tax; if raising revenue is simply incidental and the statute actually wants to
regulate conduct = not a tax and does not have to go through the process of a money bill.
Factors to consider when determining the dominant purpose of the statute:
a) Whether the money is paid into the general revenue fund for general purposes
o Strong indicator that it is a tax if this is the case.
b) No specific service received in return for the amount paid
o Also indicates that it is a tax.
c) Subject to general machineries of assessment and collection
o Also indicates that it is a tax (goes through official government process).
d) Words used (e.g. “fee”)
o Toll fee to go to Worcester/renewal of passport = fees and not taxes.
e) Imposed on public as a whole or on a substantial part?
o If not, not a tax.
f) Charge used to defray administrative costs?
o If yes, then it is not a tax.
g) Is the purpose to ensure constant stream of revenue for the state?
o If yes, then it is a tax.
Judgment
On the facts, the court held that the purpose of the exit charge was to incur or regulate the
export of capital. Thus, the purpose was to regulate conduct. Therefore, it was not regarded
as a tax and Mr. Shuttleworth could not claim back his money.
Section 25(1): No one may be deprived of property except in terms of a law of general
application, and no law may permit arbitrary deprivation of property.
- Common argument that taxes is a deprivation of property and therefore contravenes
this section of the Constitution.
- Steps to answer this argument:
o Is this a deprivation of property?
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, § First National Bank of SA t/a Wesbank v C: SARS 2001 (3) SA 310 (C):
Tax is not a deprivation of property, nor is it expropriation.
§ Pienaar Bros v C: SARS 2017 (6) SA 435 GP: “Taxes are not penalties.
Neither can they be, without any qualification, be regarded as unjust
deprivation of property use.”
§ PWC Inc. v C: SARS (GP delivered 21/2/2021): “…the argument that
taxes constitute a deprivation is ill conceived.”
• In an open and democratic society, imposing a tax is normal.
Therefore, by imposing tax, there is no deprivation of property
because it’s a normal limitation of property.
Classification of taxes
There are a number of ways in which you can classify taxes:
1. Tax base
o Essentially the thing that is being taxed.
o Generally, three bases:
§ Income tax
• E.g. income tax
• Brings in more than 50% of tax
§ Consumption tax
• The taxation of goods and services
• E.g. customs (imported goods) and excise (luxury goods)
• E.g. VAT
• Diamond export levy
§ Wealth tax
• Deals with the taxation of property
• E.g. CGT (Capital Gains Tax)
• E.g. Donations Tax and Estate Duty
• E.g. Transfer Duty (Transfer of immovable property)
• Rates
2. Rate structure
o Proportional
§ Tax generates the same proportion of income as income rises
• i.e. Flat rate tax = Corporate Income Tax is currently levied at
28%. So whether you earn R1 of income or whether you earn
R1 000 000, the tax rate remains at 28%.
• Will come down in a couple of years to 27%.
o Progressive
§ Charged in respect of certain individuals and other entities.
§ Essentially where the tax rate increases as your income increases.
TAXABLE INCOME RATE OF TAX
1 – 216 200 18% of taxable income 1 – 216 200 18% of taxable income
216 201 – 337 800 38 916 + 26% of taxable income above 216
200
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