A system of exchange control has to be in place to regulate the capital outflow from the country and to enable emergency action to be taken in the event of an economic crisis.
This was the argument advanced on Tuesday in the Pretoria High Court by the Reserve Bank in countering the application by billionaire IT entrepreneur Mark Shuttleworth, in which he has taken the government to court over its exchange control regulations.
Shuttleworth left South Africa in 2001 to settle on the Isle of Man, and his assets, worth about R4.2 billion, were frozen at the time. He transferred R1.5bn in March 2008, subject to a 10 percent exit levy. In 2009, he decided to transfer the remainder of his assets – about R2.7bn – the next year, but was required to pay a further 10 percent exit fee on this, an amount of about R270 million. Shuttleworth paid this amount under protest.
He is now claiming the last 10 percent (R270m) back from the Reserve Bank, saying this levy was unconstitutional and the decision to impose it unlawful. His advocate, Gilbert Marcus SC, told Judge Francis Legodi this week that the entire exchange control system was unconstitutional.
The levy – which was charged from 2003 up to 2010 – was based on a 2003 circular after a budget speech in Parliament by the finance minister, in which he stated the necessity of an exit fee for amounts exceeding R750 000 leaving the country.
Marcus argued that a circular could never be construed as legislation. He also attacked the Reserve Bank’s “closed-door policy” of insisting that the public communicate with it through a bank.
The 10 percent levy, the court was told, was contained in the circular, which was not accessible to the public.
But advocate Jeremy Gauntlett SC, acting for the Reserve Bank, said the exit charge was necessary to dissuade those who “might think on a whim or in a panic” to move capital out of the country. “The purpose is to dissuade capital flight,” he said.
Gauntlett added that the world had changed and people no longer moved cash in their boots, they did it through the internet. “If there is a massive capital flight, people will suffer.”
Gauntlett told the court that there was nothing to prevent people from taking cash out of the country, but this was subject to permission and certain terms and conditions.
The court was also told that although the 10 percent exit fee had lapsed in 2010, it could be reinstated any time the government deemed it necessary.
He said the Reserve Bank was bound to implement the 10 percent levy, as it was policy at the time.
The bank had no discretion to do otherwise.
The case continues. - Daily News Correspondent