The winds of change - an analysis and appraisal of selected constitutional issues affecting the ...

275 Pages·2013·7.09 MB·English

The winds of change - an analysis and appraisal
of selected constitutional issues affecting
the rights of taxpayers

by

George Kenneth Goldswain

submitted in accordance with the requirements for
the degree of

Doctor of Accounting Science

at the

University of South Africa

Supervisor: Professor E M Stack
Co-supervisor: Professor J M P Venter

November 2012
ABSTRACT

Prior to 1994, South African taxpayers had little protection from fiscal legislation or the
decisions, actions or conduct of the South African Revenue Service (“SARS”) that violated
their common law rights. Parliament reigned supreme and in tax matters, the strict and literal
approach to the interpretation of statutes was employed, with the judiciary often quoting the
mantra that there is “no equity about tax”. The Income Tax Act (Act No 58 of 1962) was
littered with discriminatory and unfair provisions based on age, religion, sex and marital
status. Even unreasonable decisions taken by SARS could not be reviewed by the judiciary as
“unreasonableness” was not a ground for review of the exercise of a discretion by SARS. On
27 April 1994, the constitutional order changed. Parliamentary supremacy was replaced with
constitutional supremacy and the rights to privacy, equality, human dignity, property and just
administrative action were codified in a Bill of Rights. The codification of these fundamental
rights has materially changed the nature and extent of the rights of South African taxpayers.
The objective of this thesis, therefore, is to identify, analyse and discuss South African
taxpayers’ rights from a constitutional perspective.
The following major conclusions can be drawn from the research done:
 the judiciary have been forced to reappraise their approach to the interpretation of statutes
from a “strict and literal” to a “purposive” approach that is in accordance with the values
underpinning the new constitutional order;
 new legislation has amended some of the so-called “reverse” onus of proof provisions that
were constitutionally unsound – this should result in greater fairness and consistency for
affected taxpayers especially in the area of when penalties may be imposed;
 the concept of clean hands and good facts can influence the judiciary when arguing that a
taxpayer’s right to just administrative action has been violated; and
 discriminatory and unfair legislation and conduct on the part of SARS may and should be
attacked on a substantive law basis, especially where human dignity is at stake.
The overall conclusion is that taxpayers’ rights are more far-reaching than prior to 1994 but
still have some way to go before they are fully interpreted and developed.
Key words: Constitution of South Africa; Bill of Rights; Taxpayers’ rights; Just
administrative action; Interpretation of statutes; Purposive approach; Right to equality;
Reverse onus of proof.
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TABLE OF CONTENTS

PAGE
CHAPTER 1 INTRODUCTION, IDENTIFICATION OF AREA OF
RESEARCH, OBJECTIVE AND IMPORTANCE OF
RESEARCH, STRUCTURE OF THESIS, RESEARCH
METHODOLOGY, AND MATTERS GENERALLY
CONSIDERED TO BE BEYOND THE SCOPE OF THIS
THESIS 1
1.1. Introduction: The Rosetta Stone and the South African Constitution 1
1.2. Identification of area of research 6
1.3. Objective of the research 7
1.4. Importance of the research 7
1.5 Structure of thesis 9
1.5.1 Is the structure of this thesis unique? 9
1.5.2 Presentation of the articles in the thesis 10
1.5.3 Details of the “core” articles used in this dissertation 11
1.5.4 Structure used to connect and synthesise articles used in thesis 12
1.6 Research methodology 16
1.7 Matters generally considered to be beyond the scope of this thesis 20
1.8 The rule of law and the Constitution 22
1.9 Summary 23
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PAGE

CHAPTER 2 THE WINDS OF CHANGE – FROM ADAM SMITH TO THE
“PURPOSIVE” APPROACH IN INTERPRETING FISCAL
LEGISLATION 25
2.1 Introduction 25
2.2 Arguing the notion that the approach used by the judiciary to interpret fiscal
legislation is the root or foundation of all taxpayers’ rights 26
2.3 The winds of change - the first “core” article 28
The purposive approach to the interpretation of fiscal legislation - the
winds of change 28
Abstract 28
Key words 28
1 Introduction 28
2 Objective and scope of study 29
3 Research method 29
4 Historical basis of interpreting tax legislation - the strict and literal rule 29
4.1 Preview 29
4.2 How the courts overcame the difficulty of adhering to the strict and
literal rule when the application of such rule led to absurdity 32
4.3 Establishing the “intention of the legislature” 33
5 The Constitution – a catalyst for change 34
5.1 The difference between the Westminster system of government and the
new constitutional dispensation - the supremacy question 34
5.2 Application of constitutional principles to the interpretation of fiscal
legislation 35
5.3 Guidelines on applying the purposive approach to interpreting
legislation 38
6 Further research on the possible effects that the constitutional approach
(incorporating the purposive approach) to the interpretation of fiscal
legislation has on taxpayers’ rights 39
7 Conclusion 40
Bibliography 41
2.4 Errata in article 43
2.5 Synthesis and concluding remarks 43
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PAGE

CHAPTER 3 HANGED BY A COMMA, GROPING IN THE DARK AND
HOLY COWS – FINGERPRINTING THE JUDICIAL AIDS
USED IN THE INTERPRETATION OF FISCAL STATUTES 45
3.1 Introduction 45
3.2 Direct v indirect application of the Constitution when interpreting statutes 46
3.2 Hanged by a comma, groping in the dark and holy cows - the second “core”
article 47
Hanged by a comma, groping in the dark and holy cows – fingerprinting
the judicial aids used in the interpretation of fiscal statutes 47
Abstract 47
Key words 47
Introduction 48
Object and scope of article 50
Research method 50
The interaction between language and legal skills in interpreting statutes 51
Is there a difference between the ‘intention of Parliament’ and the ‘purpose’
of a statute? 52
The ‘supremacy’ question 52
Dictates of the Constitution in the interpretation of statutes 53
‘Intention of Parliament’ v ‘purpose’ of statute 54
Fingerprinting, identifying and discussing the usefulness of internal and
external aids used by the South African judiciary to assist them in interpreting
statutes 55
Internal aids 56
External aids 58
Interpretational presumptions 62
In the case of cassus omissus, words may have to be ‘necessarily implied’ or
‘read in’ 62
Statutes are ‘always speaking’: ‘reading down’ so that technical and
commercial innovations and developments are taken into account 63
Presumption against double taxation 63
Language presumptions 64
Interpretational presumptions now embodied in the Constitution and further
research opportunities 66
Conclusion 68
References 70
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PAGE

3.3 Aspects discussed in the core article that need further clarification 74
3.4 The contra fiscum presumption 74
3.4.1 Origin of the contra fiscum rule of interpretation 74
3.4.2 When does it apply 75
3.4.3 Conclusion in regard to the contra fiscum presumption 78
3.5 Synthesis and concluding remarks 78

CHAPTER 4 THE REVENUE’S UNFAIR ADVANTAGE – THE
PRACTICAL APPLICATION AND CONSTITUTIONALITY
OF REVERSE ONUS OF PROOF PROVISIONS AND
PRESUMPTIONS AS APPLIED IN INCOME TAX
MATTERS 80
4.1 Introduction 80
4.2 The reverse onus of proof provisions and presumptions – the third “core”
article 82
The application and constitutionality of the so called “reverse” onus of
proof provisions and presumptions in the Income Tax Act: the revenue’s
unfair advantage 82
Abstract 82
Key words 82
1 Introduction 82
2 Objective and scope of study 83
3 Research method 84
4 An analysis and discussion of the constitutionality of the reverse onus
provisions and presumptions as applied in South African criminal law
and the law of insolvency 84
5 The ambit and scope of the general onus of proof provision and
presumptions contained in the Act and dealt with in this study:
preliminary observations 86
5.1 Section 82 of the Act: preliminary observations 86
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PAGE

5.2 Section 104(2) of the Act: preliminary observations 87
5.3 The deeming provisions of sections 76(5), 76(6) and 76(7) of the Act and
the link between sections 76(1)(b), 76(5) and 82 of the Act: preliminary
observations 87
6 Prerequisites for the application of the reverse onus of proof provision
and presumptions 88
6.1 Section 82 of the act: prerequisites 88
6.2 Sections 76(5) and 104(2) of the Act: prerequisites 89
7 How the reverse onus of proof is applied in practice 90
7.1 The standard of proof required: the general rule 90
7.2 Application of the section 82 reverse onus of proof provision 90
7.3 Application of the deeming provision as contained in section 76(5) of the
Act 93
7.4 Application of the section 104(2) presumption 95
8 Reverse onus of proof and the Constitution 95
8.1 Constitutionality of the reverse onus of proof presumption imposed in
terms of section 104(2) of the Act 95
8.2 Constitutionality of the deemed provision relating to omissions
in returns created in terms of section 76(5) 96
8.3 Constitutionality of the general reverse onus provision imposed in terms
of section 82 of the Act 99
9 Conclusion and recommendations 100
Bibliography 102
4.3 Objective of the remainder of this chapter and matters considered to be
beyond its scope 105
4.4 Differences between the onus of proof provisions contained in the Income
Tax Act and the Tax Administration Act 106
4.5 Administrative non-compliance penalties 108
4.6 Criminal non-compliance and tax evasion penalties and sanctions 109
4.7 Administrative understatement penalty 111
4.8 Practical effect of the new onus of proof provision where an administrative
understatement penalty is imposed 114
4.9 Synthesis and concluding remarks 119
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CHAPTER 5 THE TAXPAYER’S QUEST FOR ADMINISTRATIVE
JUSTICE – CLEAN HANDS, GOOD FACTS, DUE LEGAL
PROCESS AND THE HUMAN ELEMENT 123
5.1 Introduction 123
5.2 The quest for administrative justice – the fourth “core” article 124
The taxpayer’s quest for just administrative action – clean hands, good
facts, due process and the human element 124
Abstract 124
Key words 124
Introduction 125
Objective, research method followed and overview of article 128
Difference between “law of general application” and “conduct” 131
To whom fundamental rights apply 133
Onus of proof in a constitutional challenge 133
Clean hands, good facts or conversely dirty hands and bad facts – an
overview 134
The concept of “due legal process” – an overview 136
The right to just administrative action and reasonableness 139
Search and seizure procedures – violation of right to privacy and just
administrative action 141
Pay-now-argue-later provisions – right not to be arbitrarily deprived of
property and just administrative action 145
Appointment of agent – right not to be arbitrarily deprived of property and
right to just administrative action 148
Legitimate expectation doctrine – right to just administrative action 151
Remedies for taxpayers when decisions, actions and conduct of SARS are
found to be unconstitutional 152
Conclusion 153
References 155
5.3 Synthesis and concluding remarks 158
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CHAPTER 6 ARE SOME TAXPAYERS MORE EQUAL THAN OTHERS?
- AN APPRAISAL OF THE AMBIT OF THE
CONSTITUTIONAL RIGHT TO EQUALITY IN SOUTH
AFRICAN TAX LAW 160
6.1 Introduction 160
6.2 The constitutional right to equality – the fifth “core” article 161
Are some taxpayers treated more equally than others? A theoretical
analysis to determine the ambit of the constitutional right to equality in
South African tax law 161
Abstract 161
Key words 161
Introduction 161
Objective and scope of study 163
Research method 163
General principles used to interpret the Bill of Rights in general and the right
to equality in particular 163
What the Constitution has to say about the interpretation of the right to
equality 164
What the judiciary has to say about the interpretation of the right to equality 164
Reconciliation between the use of foreign law (and decisions), the concept of
ubuntu, Western culture fundamental rights (common law) principles and the
stated objective of the preamble to the Constitution to recognise the injustices
of the past as they relate to the interpretation of the right to equality 166
The interpretation of the constitutional right to equality: Analysis of its ambit 168
Placing the right to equality in its constitutional context 169
General 169
Whether discriminatory and/or unfair legislation that does not violate one or
more of the 17 grounds listed in Section 9(3) of the Constitution can also
contravene the right to equality 170
Whether the right to equality is limited to natural persons only or extends to
juristic persons 171
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Whether discriminatory legislation based on one of the 17 grounds listed in
Section 9(3) can be introduced in the Income Tax Act as a positive measure
demanded by sections 9(2) and (9)(4) of the Constitution to right the wrongs
and injustices of the past (as a remedial or restitutionary function) 171
Whether the Section 36 limitation of rights clause of the Constitution can
restrict the right to equality 173
Whether the state in general and the revenue authorities in particular have
taken positive measures to achieve equality in tax matters 174
Whether it can be expected that the interpretation of the right to equality, in
the light of the demands of the Constitution, can change over time 175
Harksen v Lane: The principles and tests used to determine whether
legislation violates the constitutional right to equality 176
The Constitutional Court’s three-step approach to determine whether
legislation violates the right to equality 177
The differences in the application of the three-step approach to the facts
between the majority and the minority decisions 177
Comments and conclusions on the Harksen decision 179
The onus of proving the unconstitutionality of legislation on the basis that a
person’s right to equality has been violated 180
Constitutional remedies to the violation of a fundamental right 181
Identification of a few provisions of the Act that appear, prima facie, to be
discriminatory and that need to be tested in a future study using the
theoretical analysis as discussed 181
Conclusion 182
References 184
6.3 Synthesis and concluding remarks 186
CHAPTER 7 JUDGE FOR YOURSELF – THE PRACTICAL
APPLICATION OF THE RIGHT TO EQUALITY WITHIN A
FISCAL ENVIRONMENT 187
7.1 Introduction 187
7.2 Judge for yourself - the sixth “core” article 188
Judge for yourself – the application of the constitutional right to equality
in a fiscal environment 188
Abstract 188
Key words 188