Fiscus to gain as diplomats’ duty-free booze dries up

The SA fiscus will save R100m a month after the Constitutional Court shut the door on diplomats getting alcohol and tobacco products duty-free — a privilege the National Treasury suspects was abused as some dignitaries were selling the products on the black market.

According to the SA Revenue Service’s calculations, the fiscus was losing about R100m a month due to illegal trading of duty-free products by diplomats. In response to this trend, the finance minister amended sections of the Customs and Excise Act and VAT Act in 2021 to do away with duty-free components when alcohol and tobacco products are sold to diplomats.

Before this action, they were entitled to a full rebate on the duty ordinarily payable in respect of goods purchased by them. The diplomats could purchase an unlimited quantity of alcohol and tobacco products.

Nu Africa, which sells dutyfree alcohol and other products from its outlets in Pretoria and Cape Town, argued that the actions of the minister to amend provisions of the customs and VAT acts violated the constitution by permitting a minister to introduce into law what is in substance a money bill.

It argued that this function belongs to the legislature.

However, the apex court on Tuesday said the minister of finance was within his rights to do away with the practice, in a case that affirms the Treasury’s powers to rein in tax abuses.

“The executive is in a much better position than parliament to appreciate the day-to-day needs and demands of administering the matters contained within the schedules to the customs and VAT [acts].

“Parliament’s delegation promotes co-operative governance and actually enhances efficient governance, both of which are constitutional imperatives,” reads the majority judgment, penned by Steven Mathopo.

“Parliament made conscious choice that the prevailing circumstances dictated that the law-making work in the form of amending the schedules be best left to the expertise and proximity of the executive.

“In the circumstances, I see nothing constitutionally impermissible with that. This is especially so since parliament retains sufficient oversight.”

The SA government in 2021 expelled diplomats from Malawi and Lesotho for the illicit sale of alcohol.

Nu Africa’s business model has brought it in conflict with Distell, which has stopped supplying it with liquor products, saying duty-free products it supplied to the retailer had made their way into the SA duty-paid market.

Nu Africa tried unsuccessfully to get Distell to reverse the decision through the Competition Tribunal, which last week dismissed its bid.

“The available evidence suggests otherwise, or at least that

the impact is likely to have been ambiguous ... We find that there are no anticompetitive effects emanating from Distell’s conduct,” the tribunal ruled.

Another issue the apex court had to contend with is the limit on alcohol consumption of 72l per six months imposed by the National Treasury on how much consulates may consume.

The Raymond Zondo-led court said it struggled to see why this limit is irrational.

The court found that diplomats had been abusing the system by purchasing the goods duty-free and thereafter selling them, and the minister was being responsible for taking a stance against the practice.

“Consulates do not have official cause to serve alcohol every day, and the allocations would be averaged out over the sixmonth period with far more than 400ml being used on some days and zero being used on many days,” Mathopo said.

“In my view, consulates are allocated 360l of wine for official use, and individuals are allocated 135l for personal use, which allows for a full bottle of wine per person per day.

“The quota system was intended to achieve a legitimate purpose and not look at the complaint selectively.

“The minister clearly diagnosed the problem — being the abuse by the diplomats — and the means taken by the minister are appropriate and justify the end. It is, therefore, difficult to ascertain where the irrationality lies.”