Court tells Sars to pay staff their salary increase

The high court in Pretoria has ruled that the SA Revenue Service (Sars) must honour the last leg of a three-year wage deal signed with unions in 2019, a setback for one of the entities facing a funding shortfall as the Treasury trawls its coffers to make up for the mismatch between spending and revenue.

Dismissing Sars’ argument that it could not afford to do so because of the Covid-19 pandemic and low revenue collection, the court ordered it to pay the consumer price index (CPI) plus 2% salary increases to members of the Public Servants Association (PSA) and the National Education Health and Allied Workers Union (Nehawu), who together represent a majority of Sars employees.

Judge Elizabeth Kubushi also ordered Sars and commissioner Edward Kieswetter to pay the unions’ legal costs, including the costs of senior counsel.

The ruling is a blow to Sars — which is facing a funding shortfall of about R20bn over the next three years — as it tries to rebuild its capacity and credibility after years of mismanagement and political interference under former commissioner Tom Moyane. Sars’ grant from the government in 2022/23 was R11.6bn and it was allocated R12.2bn for 2023/24.

Sars signed the wage deal in 2019, pledging to its workers an increase of 8% in the first year, and CPI plus 2% in the second and third years. The inflation rate was 3.75% in 2021.

While Sars implemented the wage deal in the first two years, it failed to honour the last year of the agreement, prompting the unions to approach the courts.

In her ruling on Wednesday, which Business Day has seen, Kubushi granted the relief sought by the unions and dismissed a counterapplication by Sars and Kieswetter, which sought an order declaring the wage deal unlawful and invalid.

Sars submitted in its court papers that it was unable to honour the final part of the wage deal due to “impossibility of performance”.

The judgment read in part: “Its argument is that it is not able to pay the salary increases in accordance with the wage agreement. It submits, in its papers, that it is objectively impossible for it to pay the salary increases as demanded. On that basis, it, as such, submits that the wage agreement is void and unenforceable and must be declared as such by the court.”

The reasons Sars relied on for its defence of impossibility of performance were the economic downturn and Covid-19.

“In essence, the only reason Sars has advanced for the nonpayment of the salary increases is that it was allocated less money than it requested. The low growth on revenue collection was considerable. In 2019, government collected R63.3bn less revenue than was projected at the time of the 2019 budget,” the judgment read.

Wednesday’s ruling comes against the backdrop of a Constitutional Court judgment in 2022, which stated the government could back out of implementing the last part of the three-year wage deal signed in the Public Service Co-ordinating Bargaining Council in 2018 because the

unions were “unjustifiably enriched” from the “impugned collective agreement”.

Sars’ funding requirements for 2021/22 were a little more than R12bn. “This included the increases provided for in the wage agreement.

“Originally, the allocation was reduced to R10.2bn, but an additional R1bn was allocated. All in all, Sars received an allocation of R11.2bn. Included in Sars’ expenses were the salary increases, which were to be paid out of the final allocation.”

The judgment noted it was confirmed in the finance minister’s affidavit that once final allocation is appropriated by parliament, the Treasury “does not dictate to Sars how it must expend the allocation”.

“Sars, having received the allocation of R11.2bn, chose to allocate it to expenditure other than the salary increases pertaining to the wage agreement. In these circumstances, there can be no question of impossibility of performance.”

The court found that Covid19 had no effect on the allocated funds once they were in Sars’ hands. “It was left to Sars to decide how to expend the allocation. In this case, it opted not to pay the salary increase,” the judgment read.

Sars spokesperson Siphithi Sibeko said: “Sars is studying the judgment. It will in due course offer its response.”

Labour federation Fedusa, which counts the PSA — representing more than 235,000 public servants — as an affiliate, said it is disappointed the PSA had to resort to legal action to ensure Sars honoured the wage deal.

“The power and authority of collective bargaining should never be undermined. Sars’ decision to disregard the wage agreement … is an affront to the principles of collective bargaining and should be taken seriously and be cautioned against,” said Fedusa in a statement.