Behind Shuttleworth's battle with SARB

Ferdie Schneider

Ferdie Schneider writes on how Mark Shuttleworth lost his case against the South African Reserve Bank. PHOTO: Wiki

The Constitutional Court delivered judgement on 18 June 2015 against Mark Shuttleworth in favour of the South African Reserve Bank (SARB) and the Minister of Finance.
Mark Shuttleworth emigrated to the Isle of Man in 2001 to invest outside South Africa and applied to SARB to transfer approximately R2.5 billion. SARB imposed an exit charge of 10% on the capital and Shuttleworth paid approximately R250 million although he challenged the constitutionality of imposition.
Prior to this, the High Court held that the exit charge was not a revenue-raising tax and was lawful. The Supreme Court of Appeal then found in favour of Shuttleworth that the charge was unlawful as it was not done in accordance with the procedures that the Constitution prescribed for a money Bill and SARB was directed to repay the amount with interest.
The Court did not decide on whether any exchange control provisions were unconstitutional.
SARB and the Minister then appealed this decision. The crisp issue that
had to be decided was whether the exit charge was a tax imposed to raise revenue or a regulatory charge to discourage capital outflows. Had it been a revenue-raising tax it would be invalid as it was not enacted in accordance with prescribed constitutional and statutory provisions.
In 1933, Parliament passed the Currency and Exchanges Act which empowered the President to regulate matters relating to currency, banking or exchanges. The threat of economic recession and capital flight was resurrected by the 1960 Sharpeville shootings and the President introduced Exchange Controls. South Africa started a process of exchange control relaxation following the 1994 democratic elections. The Minister, in his annual budget, generally announced the conditions imposed on capital expatriations.
The Minister took the view that the economy had become more resilient and could withstand capital outflows. As a result, emigrants were allowed to export blocked assets subject to certain criteria. Capital exports exceeding R750 000 (including amounts that already left) now had to be done through application to SARB’s Exchange Control Department which would be subject to an exit schedule and charge of 10%. Although the Shuttleworth’s funds were blocked, SARB allowed Shuttleworth to remit interest on this at prime plus 2%.
On 5 March 2008, Shuttleworth applied to SARB to transfer approximately R1.5 billion out of South Africa. SARB approved this subject to payment of an exit charge of about R165 million. In June 2009 Shuttleworth decided to transfer the remainder but was advised that the exit charge was unlawful. On SARB’s approval, Shuttleworth requested them to reconsider the imposition although he did pay about R250 million under protest, pending reconsideration. SARB refused to reconsider.
Shuttleworth approached the High Court for relief on the basis that the charge was unconstitutional. The High Court decided against him and held that the charge was not to raise revenue and was valid. Shuttleworth then approached the Supreme Court of Appeal on the constitutional validity of the charge.
The Supreme Court of Appeal held that the charge was a revenue-raising mechanism as the amount raised of approximately R2.9 billion which was paid into the National Revenue Fund. As it was found that the levy was a general imposition on amounts exceeding R750 000 and comprised a ‘tax, levy or duty’, the Court ordered SARB to repay the exit charge, with interest.
Although the regulatory framework authorising the exit charge was repealed five years ago, the outcome of this dispute would likely have had far reaching consequences. The State’s exposure to future claims was estimated to amount to approximately R2.9 billion.
The final appeal hinged on three questions. Firstly, whether the imposition was a decision of the Minister or SARB. Secondly, whether the charge comprised a national tax, levy, duty or surcharge. And thirdly, whether the purpose of the charge was to raise revenue. It was found that the imposition was made by the Minister, subject to administrative review. SARB was only responsible to apply the policy and had no implementation discretion.
Regarding a money Bill it was held that a Bill before the National Assembly is a money Bill if it imposes “national taxes, levies, duties or surcharges” and also appropriates money; abolishes, reduces or grants exemptions from taxes; or authorises direct charges against the National Revenue Fund.
A money Bill must be passed by the National Assembly as required by the Constitution but only the Minister may initiate or prepare a money Bill. It was further held that the dominant purpose of the exit charge was not to raise revenue and that it was subject to the requirements of the Constitution. Finally, it was held that the exit charge was directed at discouraging capital outflows due to the potential drain on the economy.