The words ‘retrospective’ and ‘retroactive’ are often used interchangeably, but to do so is a grave error. Derived from the Latin specere (to look at), the word ‘retrospective’ means ‘to look back in time’. ‘Retroactive’ denotes an action that actively changes a past set of events or places a new outcome on them, as it changes the law from that which it was to something else. In terms of our common law, a strong presumption exists against the interpretation of a piece of legislature in such a manner that it invalidates existing agreements or impairs existing rights.
Retroactive legislation was defined by Kentridge (assistant judge) in the case S v Mhlungu, 1995 (3) SA 867 (CC), to mean “legislation which invalidates that which was previously valid, or vice versa, that is, which affects transactions completed before the new statute came into operation. “It is legislation which enacts that as at a past date the law shall be taken to have been that which it was not”.
The difference in a nutshell
In National Director of Public Prosecutions v Carolus and Others, 2000(1) SA 1127 (SCA), Farlam (assistant judge appeal) succinctly pointed out the difference as follows:
- A retroactive statute changes the law from what it was.
- A retrospective statute operates for the future only, but it imposes new results in respect of a past event.
It’s easy to see why the presumption against retroactive legislation exists. In a Cape Special Tax Court matter, Case number 10154 1998 (7) JTLR 274 (CSpCrt), the issue to be decided was whether it was lawful for the commissioner to raise an additional assessment under the provisions of Section 79(1) of the Income Tax Act. Briefly summarised,
certain scientific expenditure was disallowed, then allowed after an objection was made.
After this, it was disallowed once more under a new assessment made on the taxpayer in respect of the year in which the scientific expenditure had in fact incurred. A new section of the Income Tax Act was then promulgated which, on the face of it, provided that certain legislation within the act could be applied retrospectively. This new legislation prompted the commissioner to reopen the assessment and tax the amount previously allowed as a deduction.
Original Deduction upheld
The law, which allowed for retrospective operation, was not in effect at the time of the original assessment and all the tax that was generated according to the law prevailing at the time of the original assessment was properly accounted for by the taxpayer. The judge therefore held that the commissioner was not authorised under the provisions of Section 79 of the Income Tax Act to issue additional assessments. Thus, the taxpayer’s assessments which provided for the deduction of the scientific expenditure was upheld.
Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.