Concourt asked to set aside exit fee ruling in Shuttleworth's favour
The South African Reserve Bank and the Minister of Finance Nhlanhla Nene on Tuesday asked the Constitutional Court to overturn a decision of the Supreme Court of Appeal that held it was unconstitutional to charge a 10% exit fee on capital leaving the country.
The case was initially brought by South African billionaire, Mark Shuttleworth, who was charged R250-million – or 10 percent of the total amount – when he wanted to move his fortune offshore.
Shuttleworth successfully challenged the constitutionality of imposing a 10% exit fee on capital leaving the country in excess of R750 000 in the Supreme Court of Appeal in 2013.
The court ordered the state to pay back Shuttleworth’s money with interest, although there was some debate on Tuesday as to whether the SCA had intended for the Reserve Bank or the finance minister to do this.
Counsel for the finance minister argued that he could not do this because he was not allowed to “dip into the fiscus” unless in specific conditions.
Shuttleworth argued that the exit charge constituted a levy, or a tax, and so fell within the ambit of Section 77 of the Constitution, which deals with “money bills”. He said the levy was unconstitutional and invalid.
The Reserve Bank said this was not the case and that the exit fee was not a tax intended to “raise revenue”.
Advocate Jeremy Gauntlett SC for the Reserve Bank said that “the dominant purpose” of the fee was to act as a deterrent against capital flight, and it was not intended to generate revenue.
“In this country, as in every other country, capital outflows are scary.
If they happen quickly – and while we assume human beings act rationally, economically.
But that is not always the case; people and their money take flight.”
Similar examples of these fees were those imposed on crayfish fishers or people who speed.
Reserve Bank ordered to repay R250-million
Shuttleworth emigrated to a tax haven in 2001. In 2003, the finance minister announced in his budget speech that the 10% exit charge would be put in place on monies in excess of R750 000 leaving the country, and which were held in blocked accounts. The condition was lifted in 2010, and the Currency Act is undergoing change.
In 2008, Shuttleworth wanted to move R1.5-billion of his money offshore. A year later, he wanted to move a further R2.5-billion. The second time, he went to court seeking to challenge the 10% fee and a significant portion of the exchange control regulations.
In July 2013, the high court dismissed Shuttleworth’s application and held that the 10% charge was lawful. But the court suspended certain regulations as these were unconstitutional.
Shuttleworth then appealed to the Suprme Court of Appeal (SCA). The SCA set aside the decision “of the Reserve Bank” to impose the exit fee, and ordered it to repay Shuttleworth R250-million – with interest.
Shuttleworth said this money would be put into a trust to fund Constitutional cases elsewhere in Africa.
But Gauntlett said this was an attempt by Shuttleworth to prove that he had public interest standing in the case, which Gauntlett said he did not.
Exchange control case dismissed
The SCA dismissed Shuttleworth’s attempt to challenge the entire exchange control scheme, and Shuttleworth wanted to conditionally cross-appeal that ruling on Tuesday.
The Reserve Bank and the finance minister were granted leave to appeal to the Constitutional Court.
On Tuesday, the Reserve Bank argued that “the wrong decision was set aside by the SCA”. This was because it was the minister who imposed the exit fee, and so Shuttleworth should have taken the minister’s decision on review and should have sought to have that decision set aside, instead of attacking the Reserve Bank as “implementer” of this policy.
Advocate Matthew Chaskalson SC for Shuttleworth argued that the exit fee was merely a policy set by the minister that the Reserve Bank did not have to implement. He said the Reserve Bank had discretion to take into account individual factors before deciding whether or not to charge someone the 10% fee, but had been “rigid” in its implementation of the policy.
He said it was possible that this was because the Reserve Bank did not grant Shuttleworth a hearing before imposing the exit fee, as it had done in other exchange control cases.
Shuttleworth also said the exit fee deprived him of his property in a procedurally unfair way.