Friend of the Court? The role of judiciaries in tax reform

In May, 2020, Colombian activists, led by the non-governmental organization Dejusticia, sued their government over the inequities in the tax system. They argue that the current tax system in Colombia violates the constitutional principle of tax progressivity. Their petition calls on the courts to require the government to address this violation within a two-year period (with an additional two-year grace period if reform gets underway but is still incomplete).

Aside from the remarkable ambition of the litigation, this Colombian case is notable because it is one of only a handful, but possibly growing, number of occasions where citizens have used the courts to challenge tax policy. Traditionally, it has been difficult, if not impossible, for public interest groups to press their tax policy claims in court. There are at least two reasons why.

First, most tax matters that make it to court are between specific taxpayers and the tax authority. Other parties lack legal standing to participate in such cases, as they are not directly affected by the outcome.

Second, while it is possible to get around the standing problem by using public interest litigation to file a constitutional claim, as Dejusticia has done, most countries’ constitutions are silent on the matter of tax policy. This might appear to render moot the approach of making a constitutional claim.

Legal status: where you stand depends on… where, and when, you sit

Neither of these constraints are fixed, however. The standing requirements for filing a case related to tax policy have loosened in many jurisdictions and can vary over time within a single jurisdiction. In the 1970s, the Indian courts began to relax standing for public interest litigation to allow suits challenging the denial of fundamental rights. Since the transition from apartheid, South African law permits standing to anyone “acting in the public interest.” This language was also adopted in the 2010 Kenyan constitution.

While standing has long been a hurdle to bringing federal tax policy cases in other countries, such as the United States, these restrictions have waxed and waned. In the early 1970s, Black taxpayers were permitted to sue the U.S. Internal Revenue Service over rules that granted tax exemptions to segregated private schools and private charitable associations. Then in the late 1970s and early 1980s, the courts restricted these types of suits by tightening federal standing requirements.

More recently, the U.S. courts increasingly take the view that the Treasury is subject to far tighter judicial oversight for major tax policy decisions and have overturned several agency rules based on failures to follow procedures requiring public input. These recent cases do not dramatically alter formal standing requirements, but by challenging the protected status of tax policy, they arguably open the door to greater public participation as required by the administrative law that governs all government behavior.

A potentially more radical approach, long permissible at the state and local level in the United States, permits taxpayer standing to challenge government spending (rather than simply the tax code) based on their status as taxpayers. In fact, Americans have successfully used such suits at the state level for more than a century to curtail what they perceive as wasteful and corrupt public expenditure. Other countries have also allowed such suits. In Canada, for example, the Supreme Court established in the 1970s that a federal litigant could claim standing in a case concerning government spending as a general taxpayer: “Any attempt to place standing in a federal taxpayer suit on the likely tax burden is as unreal as it is in the case of municipal taxpayer suits. It is not the alleged waste of public funds alone but the right of citizenry to constitutional behaviour that will support standing.” In other words, what matters for standing is not the direct tax burden but the litigant’s status as a taxpaying citizen.

Constitutional reform may open the door to further court involvement on tax matters

The second constraint, that of the inability to make a constitutional claim, has loosened in many countries in the last several decades as a result of constitutional reforms that now specify rights and duties in far more detail. The inclusion of specific economic rights in many constitutions in the post-World War II era has created an avenue for challenging government decisions that affect those rights in some way, such as revenue policies that limit available resources. Not all such constitutions have specific clauses about revenue per se: the Colombian constitution is atypical in specifying that the tax system must be progressive. Colombia is also unique in the degree to which the courts have taken up issues of economic rights and are willing to engage in so-called “dialogic justice”, where courts issue supervisory orders requiring parties to come up with policy solutions over a certain period of time, as the advocates have requested in the present tax system case.

Nevertheless, while Colombia is certainly special, there are other cases where civic actors have been able to use strategic litigation to make constitutional claims around tax. In Kenya, for example, Tax Justice Network Africa took the government to court in 2014 over a double taxation agreement with Mauritius; the courts ultimately found that the government had not adequately consulted with Parliament before ratifying this agreement. In Mexico, Fundar took the government to court over failure to release information about the beneficiaries of tax amnesties, eventually winning the argument that this information was protected by the constitutional right of access to information. In these situations, civic actors have forced courts into balancing exercises, weighing the rights of government and private citizens against the public interest in knowing about and participating in tax policy.

Civic actors can be friends of the court, but are courts friendly?

Beyond these cases, if their standing is generalized, and taxpayers are permitted to challenge government spending simply based on their general standing as taxpayers, there is considerable ground for using the courts to influence tax policy. However, this could well be a mixed blessing: taxpayer challenges can be exploited by both conservative and progressive groups, and can be used to slow the implementation of both tax policy and expenditure programs. Litigation is costly and time-consuming, and often conservative interests are better funded to see it through. There are clear risks involved, particularly where there is no constitutional protection for specific economic rights like health or housing, but there are enumerated rights protecting property, privacy and general liberty. As always, civic actors must consider their context: how progressive and independent is the judiciary, what precedents, if any, can be drawn upon domestically or globally, and what is the domestic legal framework to support progressive taxpayer suits?

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