In a 2011 decision(1) the Supreme Court granted a declaration, among other things, that the magistrate had erred in law and acted beyond the scope of the Income and Business Tax Act in ordering a taxpayer to pay taxes admittedly due by October 29 2010 "in default committal".
The decision arose out of a claim instituted by the taxpayer against the commissioner of income tax and the magistrate. The taxpayer had no income and no assets to pay the tax demanded by the commissioner. Nevertheless, the commissioner demanded that the taxpayer settle the outstanding business tax balance of BZ$1,170,567.68. The taxpayer acknowledged that it was prepared to accept liability for the payment of taxes in excess of BZ$1 million, but informed the commissioner that:
- it had been divested of both its sole income stream and its sole asset; and
- it had a zero balance in its bank account, having not received its expected income and having used its available funds to pay off its existing loans.
The commissioner therefore knew that the taxpayer was unable to pay the tax liability. Despite this inability, and the taxpayer's request that its tax liability be offset against the amounts owed to it by the government, the commissioner caused judgment summonses to be issued against the taxpayer in respect of the tax assessments. At the judgment summons hearing, despite being informed by the company's legal representative of its inability to pay, the magistrate ordered payment of the entire sum and committal in default of payment even though there was no evidence before the magistrate to show that the taxpayer was able to pay. The magistrate also did not conduct a hearing as to the taxpayer's means to pay.
In reviewing the magistrate's decision, the Supreme Court ruled that the magistrate's order that the entire sum be paid, and in default committal, was based on an error of law and beyond the scope of the Income and Business Tax Act. The court found that it was not proved to the satisfaction of the magistrate – as required by the act – that the taxpayer had the means to pay the sum ordered. Therefore, the committal order made by the magistrate could not stand, as the order was made in contravention of Section 66(2) of the act, which requires proof of the taxpayer's ability to pay and a wilful refusal to pay the tax before an order for committal can be made.
Section 66(2) of the act is replicated in the General Sales Tax Act at Section 64(2). In issuing warrants of committal under the General Sales Tax Act, the magistrate is therefore likewise under a legal obligation to satisfy himself that the taxpayer "has or has had since the date of the order the means to pay" the tax in respect of which it has defaulted, but "has refused or neglected, or refuses or neglects, to pay it".
It is therefore clear that Section 64(2) contemplates that the magistrate shall not order committal to prison for default in payment unless the commissioner can first prove to the magistrate's satisfaction that the taxpayer either has or has had since the date of the magistrate's order the means to pay the sum in respect of which default was made, and additionally, that the taxpayer has refused or neglected to pay the sum ordered to be paid. In determining whether the taxpayer has or has had the means to pay the tax, the magistrate is at liberty to request proof. For the purposes of proving means, the taxpayer and any witnesses may be summoned before the magistrate, and the debtor and witnesses may be examined on oath.
In line with the court's decision, the authorities have established that the objective of committal for the non-payment of tax is to compel payment, not to punish for non-payment.(2) This is because if the debtor has no money and no prospects of obtaining any funds, imprisonment will only punish and will thwart the true purpose, which is to collect the tax owed. It is also the case that committal to prison for tax is a remedy of last resort.(3)
This approach seems especially important, since under Section 64(5) of the General Sales Tax Act, imprisonment does not operate to extinguish or satisfy the debt. The debt is still owed after release from prison. Ultimately, the decision of a magistrate to issue a warrant of committal is not to be arbitrarily or automatically exercised, but rather must be carried out in accordance with the preconditions stipulated in the General Sales Tax Act for the issuance of a warrant – namely, that the magistrate must satisfy himself that:
- the tax debtor has or has had the means to pay the taxes owed as ordered; and
- the tax debtor has refused or neglected to pay the sums ordered to be paid.
For further information on this topic please contact Christopher Coye at Courtenay Coye LLP by telephone (+1 345 814 2013), fax (+1 345 949 4901) or email ([email protected]).
Endnotes
(1) For further details please see www.courtenaycoye.com/newsletter.php?news=134.
(2) See R v Wirral Justices, ex parte Margaret Allen [2000] QBD at 5.
(3) See R v Hendon Magistrates Court, ex parte Hall [2001] EWHC Admin 955 at Paragraphs 5 to 7.