Certain sections of legislation that ensure absolute taxpayer confidentiality are now confirmed to be constitutionally invalid. This means access can be granted to tax records, but not without just cause or due process.
The Constitutional Court confirmed a decision by the High Court in Pretoria that sections of the Promotion of Access to Information Act (PAIA) and the Tax Administration Act (TAA) are unconstitutional.
The case stems from an application to the High Court by Arena Holdings, amaBhungane, and financial journalist Warren Thomson after the South African Revenue Service (Sars) denied Thomson’s request in 2019 for access to the tax records of Jacob Zuma while he was president.
The High Court found that sections 35 and 46 of PAIA and sections 67 and 69 of the TAA were constitutionally invalid. The Constitutional Court confirmed the finding. Parliament has 24 months to address the unconstitutionality.
In the meantime, there will be mandatory disclosure in the public interest (section 46) if the disclosure will reveal evidence of a substantial contravention of or failure to comply with the law or reveal evidence of an imminent and serious risk to public safety or the environment, and if the public interest in making the disclosure clearly outweighs the harm.
Sars was quick to note that taxpayer confidentiality has not been removed. There is still a high threshold to meet when access to tax records is requested.
Formidable substantive hurdles
Constitutional Court Justice Jody Kollapen said in his majority judgment, handed down last week, that someone who seeks to have taxpayer information disclosed based on the public interest has “formidable substantive and procedural hurdles” to overcome.
There are also several avenues available to a person who feels aggrieved by a decision that grants access to his records. These include an internal appeal, a complaint to the Information Regulator, or an application to the High Court. The decision by the High Court may also be subject to further appeal.
“These procedures would have to be exhausted before a record is finally disclosed or withheld in terms of section 46,” Justice Kollapen said.
Kyle Mandy, tax partner at PwC, says given Zuma’s (litigious) history, it may take a long time, even years, before we know what is contained in the tax records of the former president – if Sars allows access to his tax records.
If it does, Sars will have to allow Zuma to make representations, and he could further delay the process through internal appeals and applications to the courts.
Tax compliance
In the court proceedings, Sars argued that tax compliance and trust in Sars would be eroded if taxpayers did not have the assurance that their affairs would always remain confidential.
Ahmore Burger-Smidt, head of the regulatory practice at Werksmans Attorneys, said the majority in the Constitutional Court disagreed with Sars’s position.
The current formulation of section 35 protects all taxpayer information – irrespective of whether such information warrants protection. This fails to strike the necessary balance between competing rights.
Justice Kollapen noted that taxpayers are not in a position to bargain with Sars for absolute secrecy as a condition for their compliance with the law. “Nor do I accept, either on the evidence or as a matter of inherent probabilities, that most taxpayers only comply (or only comply fully) with the law because of a guarantee of absolute confidentiality.”
Law-abiding taxpayers generally comply because the law demands it and because of the serious financial and criminal consequences of non-compliance.
“The dishonest taxpayer, who is not afraid of the potential financial and criminal consequences of evasion, is unlikely to be lured to make candid disclosure by a guarantee of secrecy,” Justice Kollapen said.
Mandy welcomes the confirmation of the High Court’s findings. He also describes them as a balanced approach to protect the right to privacy (and the right to confidentiality insofar as a taxpayer’s tax affairs are concerned) and the right to information and the public interest.
He does note that Sars may take the position that the public interest override (section 46 of PAIA) does not apply. Realistically, the only plausible reason would be that the records do not reveal evidence of a substantial contravention of the law. This raises other questions because only Sars and the taxpayer have insight into the tax records.
“Perhaps more pertinently, the judgment opens the door for the public to request access to the tax records of other taxpayers in the public interest, not only politicians, but also of persons implicated in criminality, such as illicit trade or corruption.”
Precedent from previous cases
Emil Brincker, head of the tax and exchange control practice at Cliffe Dekker Hofmeyr, says the Constitutional Court’s findings were not surprising given the approach taken by the same court in previous cases relating to the confidentiality of parties during divorce proceedings and asylum applications.
In the Johncom and Chipu cases, the court was unwilling to condone an absolute prohibition on information despite dealing with two vulnerable categories of people: children and refugees.
Justice Kollapen asked: “Is there any basis to suggest that taxpayers form a special category of persons that are entitled to an absolute level of protection from the disclosure of information that may reveal serious criminality?”
The media groups contended that Zuma evaded tax while president, that he failed to disclose other sources of income, and that he did not pay tax on fringe benefits.
Much of this information was disclosed in the explosive book by investigative journalist Jacque Pauw, titled The President’s Keepers.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article does not constitute financial planning, legal or tax advice that is appropriate to every individual’s needs and circumstances.
