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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.He said this included questions raised during Thursday’s hearing about the absence of particular limits on the minister’s powers, the nature of parliamentary safeguards and why the legislation had been structured in its present form.The high court, Trengove argued, had rejected the DA’s argument that there was an absolute prohibition on the delegation of the relevant powers but then proceeded to apply the New Africa balancing approach.The court ultimately found that parliament did not exercise sufficient contemporaneous control over an altered VAT rate and that the provision lacked sufficiently defined statutory limits or mechanisms of prompt legislative control.Trengove argued that this was a separate basis on which to invalidate the provision and had not been properly pleaded.The issue was not whether the evidence already before the court was disputed, he argued, but whether Sars and the minister had been given a fair opportunity to place before the court the evidence they would have presented had the case been pleaded on that basis.He submitted that it would be unfair for the Constitutional Court to decide the case on a ground that had not been pleaded.Trengove further rejected the DA’s argument that there was an absolute constitutional prohibition on delegating powers connected to taxation.He accepted that the power to impose a tax could not itself be delegated but argued that this did not resolve the separate question of whether parliament could delegate a limited power to adjust a component of a broader statutory tax framework.Parliament had created the overall structure governing VAT, he argued, including who was taxed and how the tax operated. The disputed provision concerned the adjustment of the rate within that statutory framework.Advocate Stuart Marcus, appearing alongside Trengove, addressed the court on comparative law and argued that the DA’s position was inconsistent with the experience of other constitutional democracies.Marcus said Canada, England and the US shared important constitutional principles with South Africa, including the separation of powers, no taxation without representation and the requirement that taxation emanate from the legislature.Yet, he submitted, courts in all three jurisdictions had recognised that taxing powers could be delegated to the executive within certain limits.Marcus challenged the DA’s reliance on a Colombian constitutional decision, arguing that it arose from a materially different constitutional and institutional framework.The fiscal consequences of the dispute also featured prominently in the respondents’ case.Advocate Kameshni Pillay, for the finance minister, argued that section 7(4) enabled responsive fiscal management while preserving parliament’s ultimate legislative authority over taxation.Pillay told the court that without such a mechanism the minister would not have an effective tool to respond to immediate revenue shortfalls or fiscal pressures.The broader argument advanced on behalf of the government is that if a tax adjustment cannot be implemented as part of the budget process and must await the completion of the full legislative process, the government could face a gap between anticipated revenue and expenditure that would have to be financed through additional borrowing.The DA’s counterargument is that fiscal convenience cannot override the constitution’s allocation of taxing powers to parliament.The party has argued that allowing the executive to determine a VAT increase before parliament has approved it weakens the constitutional requirement that decisions on taxation be made by the people’s elected representatives.The court’s eventual ruling will therefore have implications beyond the proposed VAT increase that triggered the litigation. It will determine the extent to which parliament may delegate authority over elements of the tax system to the executive, and where the constitutional line lies between responsive fiscal management and parliament’s exclusive authority over taxation.Business Day
