The Constitutional Court in Nu Africa Duty Free Shops (Pty) Ltd v Minister of Finance and Others (CCT 29/22; CCT 57/22 ; CCT 58/22) [2023] ZACC 31 (3 October 2023) has taken a dim view on the fiscal sins of our diplomats by confirming that the amendments to the rebate of VAT and customs duties conferred on diplomats by the Customs and Excise Act (CEA) and Value-Added Tax Act (VAT Act) are constitutional and valid. Nu Africa Duty Free Shops (ty) Ltd (Nu Africa), Ambassador Duty Free (Pty) Ltd (Ambassador), Flemingo Duty Free Shops International SA (Pty) Limited (Flemingo) and International Trade & Commodities 2055 CC t/a Assortim Duty Free (Assortim) supply duty-free products to diplomats, their representatives and relatives. These retailers must operate their respective stores in line with the Diplomatic Immunities and Privileges Act, the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations as well as the CEA and the VAT Act. All these businesses are conducted under licences issued in terms of section 21 of the CEA.

Before 1 August 2021, diplomats were allowed a full rebate on the duty usually paid in respect of goods bought by them from any of the abovementioned retailers as long as such goods were acquired for the official use of their mission or for personal use. Before the amendments, diplomats could buy an unrestricted amount of alcohol and tobacco products on a duty-free basis. In 2019, the Minister of Finance (Minister) and SARS identified abuse in the system where certain diplomats were onselling duty-free tobacco and alcohol in South Africa. Thus, the Minister announced a review of the treatment of duty-free shops including the legislative framework governing duty-free shops in a Budget Review dated 20 February 2019. A review was done of previous audit findings of the duty-free shops and according to the Minister and SARS, the fiscus was losing around R100 million per month. SARS then did a public comment process on the proposed amendments. The nub of the proposed amendments was the introduction of substantive components of a quota system and the payment of tax on certain items. Nu Africa and Ambassador then took them to court to challenge these amendments to this rebate of duties.

The High Court ruled in favour of these duty-free shops by finding that the amendments made by the Minister of Finance and SARS to Schedules 4 and 6 of the Customs and Excise Act and its attendant Rules as well as Schedule 1 of the VAT Act are unconstitutional since they unlawfully delegated a plenary legislative power that is exclusively the power of Parliament. Consequently, the High Court had declared section 75(15)(a)(i)(bb) of the Customs Act, section 74(3)(a) of the Value-Added Tax Act (VAT Act), which conferred these amendment powers as unconstitutional and invalid. The High Court ruled that only Parliament could amend the Schedules to the CEA since they were adopted together with the Act and were thus part of it. The High Court had also found that the amendments which introduced a quota were also not based on any data.

Tasked with confirming this High Court order, the Constitutional Court rejected the High Court decision. First, the Constitutional Court found that the High Court had erred in this regard and explained that in fact, our law does allow delegation to the executive of the power to amend Schedules to primary legislation. The inquiry here is not whether there was a delegation and thus it is immediately unconstitutional; rather, the inquiry is context-specific and due weight must be given to the subject matter, the extent of the delegation and the adequacy of the limits placed on the exercise of such discretionary powers by the legislation in question. The approach suggested by the retailers would allow for the diplomats in question to continue to benefit from ill-gotten gains while the Minister seeks the intervention of Parliament. Therefore, the conferral of legislative power to a member of the executive does not violate our principle of separation powers.

Secondly, the apex court saw the High Court decision as failing to apply the test of rationality since the inquiry in this regard is not whether a better instrument exists to achieve the goal in question, but whether there is a rational connection between the chosen instrument and the legitimate goal sought to achieved. The High Court had ruled that the Minister’s quota was not based on any evidence. The Constitutional Court then ruled that it is not relevant to the rationality of that choice to interrogate the precise information upon which the Minister relied to determine the maximum quota. If the High Court order had been granted, this would have stripped the Minister of Finance of the power to amend these Schedules thereby potentially plunging international trade administration into chaos. The decision on the face of it seems correct in law and reflects a pragmatic approach to what is a pervasive problem that was seen a requiring an urgent solution.

Ultimately, we must be cautious of the secretive approach taken by the government and endorsed by the majority decision in this matter as aptly captured by this witty and metaphorical finding in the non-binding separate judgment of Justice Rogers:

“If a Minister relies on material which purports to be such data but the data is nonsensical (or “gobbledygook”), the resultant decision cannot be rational. To borrow computer modelling’s colourful acronym, this is the GIGO principle: “garbage in, garbage out”. The position is even worse in the present case – we do not even know what information was before the Minister when he took his decision, because nobody has told us. The Minister has not stated what inferences he drew from what material.”

As it turns out, governance is not just about power, one needs a legal and factual basis to exercise that power. It seems doubtful that these rebate amendments were based on any data or information. The High Court and some of the members of our apex court agree.