MEMORANDUM - Venn Diagnostics (Pty) Ltd

1.Exemption of Public Service Infrastructure

1.1. State property and infrastructure is funded by the taxpayer. The effect of the Bill is that the 20% rebate currently applicable to State property will be eliminated. The taxpayer will be obliged to carry this extra burden and the local authorities will benefit by the elimination of the rebate apart from any other increases they choose to impose in respect of rates on State Property.

1.2. In respect of public service infrastructure, that same taxpayer, in the capacity of consumer, pays for certain public services. Should public service infrastructure not be exempted from rates, the increased cost burden on public service infrastructure will be passed on to the consumer in the charges for the services concerned.

1.3. That same taxpayer as consumer, in the capacity of inhabitant of a municipality, pays for services such as electricity, water, etc and, where a property owner, pays for rates and taxes. Should the exemption on public service infrastructure be eliminated, the increased costs in respect of utilities such as electricity and water will be passed on to the municipality, which will in turn, be passed on to the consumer. The inhabitant of the municipality will accordingly be subject to further increased costs of municipal services, and as a rate payer will not receive any reduction or benefit.

1.4. As a result of the impending changes to the electricity industry, property and infrastructure presently owned by municipalities and utilized for the purpose of providing electricity, will be transferred to the Regional Electricity Distributors. If the exemption on public service infrastructure is eliminated, such property and infrastructure shall become subject to rates, from which the municipalities will benefit. The increased cost of electricity services will inevitably be passed on to the consumer of such services.

1.5. It is apparent from the foregoing that there is a persistent accumulation of prejudice to the ordinary citizen in the capacity of taxpayer, consumer and inhabitant of a municipality, and a persistent accumulation of benefit to the local authority.

1.6. Such one-sided accumulation of prejudice to the ordinary citizen, and one-sided accumulation of benefit to the local authority, cannot be in the public interest, and underlies the principal whereby public service infrastructure has been given the benefits of exemption in the past.

2.1. The following is to be noted from prior presentations on behalf of DPLG:

2.1.1.Of 23 municipalities surveyed, 14 are not rating any components of public service infrastructure, and in respect of 9 municipalities which are rating some elements of public service infrastructure, 7 stated that exemption of public service infrastructure would not impact negatively.

2.1.2.In respect of 2 municipalities which have indicated their view that the exclusions would have a negative impact, they are estimated at approximately 5% in the case of Moses kutane, and 0.95% in respect of the City of Cape Town. However, it is apparent that in assessing such projected loss of revenue the municipalities have not taken into account the substantial increases which would result from the extended reach of the municipalities to rate further properties in terms of the Bill, as well as the substantial increase in revenues which would result from the elimination of the general 20% rebate in respect of State-owned property (many of which properties are found in the portfolios of public service infrastructure companies).

2.1.3.It is accordingly apparent that exemption of public service infrastructure will not have any significant prejudicial effect on local authorities.

3.1. Current provincial legislation differs from province to province in its approach to public service infrastructure.

3.2. For example, the Free State Ordinance allows council to provide grants-in-aid in respect of property registered in the name of another local authority if such property is used in connection with the supply of electricity, water, gas or sanitation services. Gauteng and Mpumalanga ordinances do not contain such provisions.

3.3. However, all the provincial legislation is subject to the current Rating of State Property Act which imposes a the rebate of 20% in respect of State property and exemption in respect of certain infrastructures such as railways and roads.

3.4. In order to achieve the simplicity and uniformity which is a primary object of the Bill, the provisions for exemption should be contained in National Legislation rather than conferring a discretion on either the provinces or the Local Authorities.

Hayley Elwen

Venn Diagnostics (Pty) Ltd