The
applicant (Delta) approached this court seeking a declaration in the
following terms:-
“1.
It is declared that the provisions of the proviso to section 72(7) of
the Income Tax Act [Chapter 23:06], prior to the repeal of that
proviso by section 3(a) of the Finance Act 2012, obligated the
Commissioner–General of the Respondent to waive any interest due by
the Applicant in respect of any underestimation of its profits for
the years 2009 and 2010 and in respect of any underpayment of
provisional tax in respect of those two years.
2.
It is declared that the Applicant has no liability to pay the sum of
$698,864=48 demanded by the Respondent in respect of interest on the
underpayment of provisional tax for the years 2009 and 2010.
3.
The Respondent shall pay the costs of this application.”
The
facts of the matter are that the applicant (Delta) is a tax payer. In
terms of section 72(2) of the Income Tax Act [Chapter
23:06]
(The Act) the applicant was to pay provisional tax based on estimates
of its profit per every quarter of the year. During the 2009 and 2010
financial years, Delta under-estimated its profits resulting in an
underpayment by it of amounts of provisional tax if regard is had to
the assessment made as to the total tax payable by it in respect of
both years. In each of the years in question, the margin of error in
the under-estimation of the amount of provisional tax payable
exceeded 10 percent and that the forecast of profits by Delta did not
fall within a 10 percent margin of error.
The
Zimbabwe Revenue Authority (ZIMRA), by letter dated 15 August 2012,
demanded the payment of interest in respect of the underpayment of
amounts due as provisional tax in terms of section 72(7) of the
Income Tax Act [Chapter
23:06].
It demanded a total of US$698,864=48.
Delta
disputes liability to pay the interest as claimed and it filed the
present proceedings.
The
dispute between the parties concerns the interpretation of the
proviso to section 72(7) of the Income Tax Act [Chapter
23:06].
By
the time this matter was heard, the proviso had been repealed by
section 3(a) of the Finance Act 2012. The issues at hand were dealt
with more fully in a substituted subsection 11 to section 72. The
amendments did not have a retrospective effect.
It
is important, at the outset, to set out the terms of the proviso. It
provides:-
“Provided
that, for the avoidance of doubt, the Commissioner shall waive
interest under circumstances where the taxpayer fails to forecast
profits within a ten percentum margin of error.”
It
is Delta's contention that the clear meaning of the proviso
requires the Commissioner to waive interest in the circumstances of
this matter on the underpayment of provisional tax for 2009 and 2010.
The
Zimbabwe Revenue Authority's (ZIMRA)
contention is that such a result fails to punish tax payers, such as
Delta, who under-estimated their taxable income in advance and
therefore underpay provisional tax. ZIMRA contends that this leads to
an absurdity. It contends that the proviso must be looked at as
though two critical words “fails to” were not there.
A
historical context in relation to the coming into effect of the
proviso will assist in the determination of the matter, and, in
particular, the Zimbabwe Revenue Authority's (ZIMRA) contention
regarding punishing those who under-estimate their taxable income.
The proviso came into effect on 1 January 2005 through the Finance
(No.2) Act 2006. Section 72(7) of the Income Tax Act [Chapter
23:06]
was repealed and substituted and the original word 'penalties'
was substituted by the word 'interest'.
Counsel
for the applicant submitted that interest cannot be regarded as a
punishment as contended by ZIMRA. Interest is a payment made for use
of money or upon the late payment of monies due whereas a punishment,
by its very nature, imputes improper or unlawful conduct. He referred
to Scoin
Trading (Pty) Ltd v Bernstein NO
2011 (2) SA 118 SCA…, following Bellairs
v Hodnet & Anor
1978 (1) SA 1109 (A)…, where PILLAY AJA had this to say:-
“If
a debtor's obligation is to pay a sum of money on a stipulated date
and he is in mora
in that he failed to perform on or before the time agrees upon the
damage. They follow naturally from such failure will be interest a
tempore
morae
or mora
interest. The purpose of mora interest is to place the creditor in
the position he would have been if the debtor had performed in terms
of the undertaking.”
I
agree entirely with the submissions by counsel for the applicant.
The
legislature changed the concept in the proviso from one being a
penalty to one requiring the payment of interest….,. This is taking
into account that these amendments were introduced just before the
hyper inflationary environment.
Counsel
for the applicant further submitted that the wording of the proviso
is such that, adopting the plain meaning of the words, leads to the
understanding that there is no doubt on the matter between the
Commissioner and the taxpayers. The Commissioner must waive interest
on any outstanding amounts of provisional tax not paid on the due
instalment date if the taxpayer fails to forecast his yearly profits
within a 10 percent margin of error. The interpretation by ZIMRA
creates the doubt that the legislative intended to avoid. He further
submitted that the position adopted by the respondent, in effect,
asks the court to re-write legislation which this court cannot do.
He
further submitted that in the interpretation of tax legislation which
is uncertain the contra
fiscum
maxim
applies.
Counsel
for the respondent submitted that the interpretation of the proviso
to section 72(7) of the Income Tax Act [Chapter
23:06]
ascribed to it by the applicant is too literal as to lead to an
absurdity and unconscionable results as would never have been
contemplated by the legislative. He further submitted that the
interpretation ascribed to the proviso by Delta arises as a result of
poor draftsmanship which the legislature has subsequently clarified.
He
contended that the
Zimbabwe Revenue Authority (ZIMRA),
cognisant of the fact that the estimates of provisional tax may not
always be accurate, provided a margin of error of 10 percent in
respect of which the taxpayer would not be liable to interest. For
errors above this margin, the taxpayer would be liable for interest
as a penalty for the error.
He
urged the court to look at the context in which the proviso was
enacted. He urged the court to look at the provisions of section
72(9), section 72(11) as read with section 71(2). The construction of
subsection 11 of section 72 must therefore be such as to be in
harmony with the provision in section 72. He contended that the
contra
fiscum
rule does not apply in this matter as to do so would be to use it as
a tool to escape clear liability.
He
contended that to clarify the proviso, Parliament, in the Finance Act
(No. 4) 2012 repealed the proviso to subsection 72 and makes it clear
that interest is payable on provisional tax unless a waiver has been
granted in special circumstances.
The
golden rule of interpretation of statutes is that where the language
used in a statute is plain and unambigious it should be given its
ordinary meaning unless that would lead to some absurdity or
inconsistency with the intention of the legislature. This is trite.
From
the nature of the dispute before me, it is clear that the proviso to
section 72(7) of the Income Tax Act [Chapter
23:06]
is capable of two constructions. The one contended by Delta and the
other suggested by the Zimbabwe Revenue Authority (ZIMRA) where it
suggests the court ignores certain words in reading the proviso.
In
Ex
Parte
Minister of Justice: In re; R
v Jacobson Rhevy
1931 AD 466…, it was stated:-
“The
function of the court of law is to construe the language of the
legislature and arrive at its intention in that way; it has no power
to re-draft or alter the language. But intention is not to be
ascertained by surmise however probable such surmise may be.”
This
approach was adopted by GUBBAY JA…, in Mxumalo & Ors v Guni
1987 (2) ZLR (1) (SC)…, where he stated:-
“The
language used is plain and unambigious and the intention of the Law
Society is to be gathered therefrom. It is not for a court to surmise
that the Law Society may have had an intention other than that which
clearly emerges from the language used.”
To
similar effect are the statements by SHEARER J in Ex
parte Lynn and Others
1987 SA 797 (N)…,. There the learned judge said:
“The
test to be applied has been authoritatively laid down by INNES CJ in
Venter
v R
1907
TS 910 at 914, 915:
'…,
it appears to me that the principle we should adopt may be expressed
somewhat in this way – that when to give the plain words of the
statue their ordinary meaning would lead to absurdity so glaring that
it could never have been contemplated by the Legislature, or where it
would lead to a result contrary to the intention of the Legislature,
as shown by the context or by such other considerations as the Court
is justified in taking into account, the Court may depart from the
ordinary effect of the words to the extent necessary to remove the
absurdity and give effect to the true intention of the Legislature.'
In
R
v Patel and Another
1944 AD 379 at 388 CENTLIVRES JA, referring to Venter's
case
supra, R
v Jaspan and Another
1940 AD 9 and Storm
& Co v Durban Municipality
1925 AD 49, said:
'These
cases are, however, authorities for cutting down or restricting the
language used by the Legislature when that course is justified by a
consideration of the intention and object of the Legislature. They
are not authorities for adding to the language used by the
Legislature.'
To
the same effect is the judgment of De VILLIERS JA in Principal
Immigration Officer v Hawabu and Another
1936 AD 26 at 31:
'It
is true that, even where the words of an Act are capable of one
meaning only, there is an exceptional class of extreme cases in which
courts of law have felt themselves compelled to 'modify' or 'cut
down' or 'vary' the words used by the Legislature. In a sense,
this might be called amputation rather than interpretation.'”
These
are general rules of interpretation, but, in
casu,
we are dealing with interpretation of tax legislation.
In
the case of ambiguity arising during the interpretation of fiscal
legislation, the contra
fiscum
rule will be applicable. The contra
fiscum
rule is a common law principle stipulating that should a taxing
statutory provision reveal ambiguity, the ambiguous provision must be
interpreted in a manner that favours a taxpayer. See Badenhorst v CIR
1955 (2) SA 207 (215). Put in simple terms, where a tax provision is
capable of two constructions, the court will adopt the construction
that imposes the smaller burden on the taxpayer. See Endeavour
Foundation & Anor v Commissioner of Taxes
1995 (1) ZLR 339 (SC)…, where GUBBAY CJ…, stated:-
“To
put it at its highest for the Commissioner, para 10 of the Thirteenth
Schedule reveals a manifest ambiguity with regard to whether the
amount for the payment of which the employer is liable is a 'tax'
or simply 'an amount'. Consequently, the contra
fiscum
principle must be applied and the provision interpreted so as to
impose the smaller burden on the Company. For s47 allows the
Commissioner a summary remedy for the recovery of tax, whereas under
para 10 he has to institute action in a court of competent
jurisdiction. See Est
Reynolds & Ors v CIR
1937 AD 57 at 70; Israelsohn
v CIR
1952 (3) SA 529 (A) at 540 F-H; Sekretaris
van Binnelandse Inkomste v Raubenheimer
1969 (4) SA 314 (A) at 322D.”
See
also Meman
& Anor v Controller of Customs and Excise
(1) ZLR 170 (SC)…,.
In
view of the above, I am inclined to agree with the interpretation by
Delta which imposes a smaller burden on it.
It
must be borne in mind that it is within the Commissioner's powers
to approach Parliament to have taxing legislation amended to avoid an
ambiguity such as happened in
casu
and Parliament has the power to make any such amendment
retrospective. Parliament was approached to amend the proviso to
section 72(2) but it determined that the proviso be repealed and the
issue be dealt with in a substituted subsection (11) to section 72.
It did not choose to make those changes retrospective.
Delta
submits that this was deliberate as the Commissioner was already
appraised of the dispute existing in this matter. What this means is
that the existing rights, as given in terms of the proviso to section
72(7) of the Income Tax Act [Chapter
23:06]
cannot be affected. This position was made clear in Pretorius
v Minister of Defence
1980 ZLR 395 A…, where FIELDSEND CJ stated:-
“…,.
The well recognised principle relied upon…, that statutes will not
be held to take away existing rights retrospectively unless they so
provide expressly or by necessary intendment. Such a principle
applies with increased force where, as here, a right is created by a
statute, and is purported to be taken away by subsidiary legislation
made under that statute which gives no specific power to legislate
retrospectively.”
The
respondents, relying on the memorandum to the Finance Bill, contends
that the amendments made to section 72 of the Income Tax Act [Chapter
23:06]
by section 3 of the Finance Act 2012 are simply to clarify the
existing law.
This
assertion is not correct if regard is had to the fundamental changes
introduced by the amendments. Had it been a simple matter of
clarification then the words the Zimbabwe Revenue Authority (ZIMRA)
wished to be ignored could simply have been deleted from the proviso.
In its opposing affidavit, ZIMRA proposes that the words “fails to”
in the provision to section 72(7) of the Income Tax Act [Chapter
23:06]
be rejected and be disregarded by the court as surplus age. In its
heads of argument, ZIMRA suggests that the “literal interpretation
of the word 'shall' in the proviso must be modified to mean 'may'
in which event the proviso read together with the rest of the section
and in particular subsection 11 will mean the Commissioner General
may, upon consideration of the circumstances set out in subsection
11, waive interest that was otherwise due in terms of subsection 9.”
ZIMRA
has asked this court to do what it cannot do. See Car
Rental Services (Pvt) Ltd v Director of Customs & Exercise
(1) ZLR 402 (SC)…, where GUBBAY JA…, had this to say:-
“It
is not for the Courts to legislate or to attempt to improve on the
situation achieved by Parliament through the language it has chosen
in its enactment. Effect must be given to what the Act says or
permits and not to what it may be thought it ought to have said or
prohibited. If there is a casus
omissus
in the Act, and if it could lead to undesirable consequences, the
Court has no power to fill it. It is a matter for the Legislature.”
From
the above, I am inclined to agree with the position advanced by Delta
that the proviso to section 72(7) of the Income Tax Act [Chapter
23:06]
must be given it ordinary meaning, namely, that where the
under-estimation of profits is more than 10 percent of the final
figure, the Commissioner is obligated to waive interest. I am
fortified in this view by the fact that the legislature found it fit,
in the Finance (No.2) Act 2006, to repeal the word 'penalty' and
substitute it with 'interest'. The legislature removed the
punishment element taking into account that the country was getting
into a hyper inflationary environment where taxpayers might have
problems to estimate their provisional tax with some accuracy.
Accordingly,
I will make the following order:-
“1.
It is declared that the provisions of the proviso to section 72(7) of
the Income Tax Act [Chapter
23:06],
prior to the repeal of that proviso by section 3(a) of the Finance
Act 2012, obligated the Commissioner-General of the Respondent to
waive any interest due by the Applicant in respect of any
underestimation of its profits for the years 2009 and 2010 and in
respect of any underpayment of provisional tax in respect of those
two years.
2.
It is declared that the Applicant has no liability to pay the sum of
$698,864=48 demanded by the respondent in respect of interest on the
underpayment of provisional tax for the years 2009 and 2010.
3.
The Respondent to pay the costs of this application.”
