FFC SUBMISSION ON THE LOCAL GOVERNMENT: PROPERTY RATES BILL, PUBLIC HEARINGS, 13-14 MAY 2003, PARLIAMENT, CAPE TOWN
The Commission welcomes the Bill which seeks to streamline and rationalize the process of levying property taxes through a common national framework. Indeed, it takes a step forward from the existing state of affairs as it aims to improve the equity, efficiency and transparency with which property rates are imposed, countrywide. The Commission notes the care with which the Bill has been drafted, taking into account relevant Constitutional provisions, and covering all the important matters concerning property taxation by municipalities.
As you may be aware Section 229(5) of the Constitution provides that any national legislation envisaged in terms of section 229 may be enacted only after the Financial and Fiscal Commission has been consulted. This submission is made in terms of Section 229 (5) and takes into account comments made during our presentation at your recent workshop on the Bill held on the 7 – 8 April 2003. Please note that the submission is made within the context and legislative provisions of the Constitution and as such the comments below are limited to the specific areas of the Commission’s mandate.
1. Property Ratings
The requirement in the Bill that all property (as defined in the Bill) has to be rated uniformly across municipalities introduces a new point of departure in the history of South Africa’s property rating regime. Historically, certain properties, especially in rural areas, have never been subject to property rates. By all accounts, this is a principle to be welcomed. Through its application, the fiscal capacity of municipalities can be ascertained, contributing to a more holistic/complete revenue sharing formula. However, the implications for new payers such as government departments and people who reside in land that is held in trust appear not to have been fully taken account of. Furthermore, the implications for rural dwellers, especially in those areas where traditional leaders are in control are not clear. This obviously creates an onerous burden for municipalities in terms of collecting rates.
It should be noted that in future, a revenue raising capacity measure might be introduced into the local government equitable share formula. The Constitution requires that in making its recommendations on the equitable division, the FFC must among other criteria take into consideration the fiscal capacity and efficiency of provinces and municipalities. The current equitable share formula for municipalities does to an extent take this into account via the Institutional element. However, the formula is currently being reviewed with a view to utilizing a more comprehensive measure of revenue raising capacity. If the property rates base is used as a key element in the measure for tax capacity (which is quite possible in the long term), then there is a possibility that some municipalities with potentially sizeable rates bases may be "penalized" for negative fiscal effort even where that may be due to circumstances beyond their control.
2. Exemptions, Rebates and Reductions
Part 2 (14) of the Bill allows municipalities to provide exemptions, rebates and reductions. It is imperative that whatever a municipality’s rates policy is, it must treat ratepayers equitably. However, given that different property rates bases will exist for different municipalities, the possibility to grant exemptions, rebates etc will also vary across and between municipalities. Where municipalities decide on exemptions they need to be aware that such exemptions will be accounted for as revenue foregone that will not be compensated for through the intergovernmental grants system. It is, nevertheless, still in the interest of local government autonomy that municipalities are allowed this discretion, together of course, with clearly specified conditions upon which such discretionary power may be exercised. Richer municipalities may be tempted to allow too many exemptions at the expense of the integrity of the tax system as a whole. One of the key elements of the Constitution is that sub-national governments must not exercise their revenue raising powers in a manner that impacts negatively on the movement of capital between jurisdictions. Too much discretion with respect to exemptions and reductions in a local government sphere that is so diverse may well impact on this principle of the Constitution.
It is important to clarify the guidelines to be issued by the Minister on the types of properties that may be exempted or may be subject to concessional rates. There must be clear provisions in the Act to subject the discretionary powers of municipalities to scrutiny. Such provisions may impose limits and/or conditions to reduce unfair differences of burden across borders. It may even be necessary to require municipalities to seek permission from the MEC to grant specific concessions and exemptions. If the national policy framework can lay down a rates policy that specifies categories that may be exempted and different rate bands for different kinds of properties and rebates and reductions, the MEC need not intervene in this matter.
3. Annual rate Increases
Part 3 (17) of the Bill refers to the limits that the Minister in concurrence with the Minister of Finance may set with respect to annual increases in rates. The problem with referring to such limits is that is that it is not clear whether these are lower or upper limits (floors or caps). Such limits may be interpreted to imply indicative increases in rates. The FFC is of the view that in order to increase flexibility for municipalities, rather than talk of limits, the clause should refer to rate bands within which increases can occur.
4. Register of Properties
Part 5 (20) of the Bill indicates the details that the register of properties should contain. In addition to the listed items, the Commission is of the view that it will be useful to also add the type of building (depending on the quality of construction), the cost of the original building and the cost of additions or alterations with dates.
5. Conclusion
The implementation of the Bill, upon its enactment, will augur well for the reform of the current status quo with regard to the practice of the administration of property rates by municipalities. Indeed, it presents municipalities with a simpler and rationalized legal framework within the context of national policy. Equally so, its careful implementation would have positive impacts not only in terms of revenue for municipalities but also for accountability to taxpayers. In the main, the emphasis on transparency in the Bill is in tandem with the basic tenets and principles underpinning the Constitution.