2. The Constitution gives municipalities the power to levy rates on property. It allows for Parliament to regulate this power. In the processing of the Bill, the Portfolio Committee has been careful not to undermine the constitutional power of municipalities.

3. Consistent with the Constitution, the Bill provides an enabling framework for municipalities, if they so decide to extend the levying of rates to categories of owners and properties that have until now been partially or fully excluded from paying rates. Examples of this would include the properties of public entities, farmers and others in rural areas, religious, welfare and charitable organizations, independent schools and conservation bodies. Stakeholders from these and other sectors made strenuous representations to the Portfolio Committee for the retention and even extension of these benefits. Some of them presented formidable arguments. The Portfolio Committee's response was to find a balance between the need for municipalities to have adequate revenue to fulfil their enhanced, constitutionally-mandated, developmental responsibilities and the need to avoid levying rates in a way that debilitates categories of property owners. The Portfolio Committee also sought to strike a balance between recognizing the valuable developmental goals served by certain categories of owners (for example, public entities and welfare organizations), and the need to ensure that it is national and provincial government, not local government, that bears the major cost of the role served by these agencies.

4. The Committee gave considerable attention to what the basis for valuation should be. Among the options explored were a land-valuation only. land and improvements at variable rates land and improvements at a uniform rate. and annual rental value. The department was asked to undertake further empirical studies in regard to these various options. These options were also discussed with a wide range of stakeholders and academic and other technical experts. both South African and international. The inputs by the Department and the vast majority of those consulted supported the basis for valuation as being the market value of land and improvements at a uniform rate. The majority in the Portfolio Committee agreed with this. In any case. this is the trend internationally.

5. The Bill does not prescribe that property rates must be levied in traditional authority areas. Each municipality must decide for itself on this. But property rates cannot be levied unless there is individual ownership in communal areas. Even where there is individual ownership the property has to be first valued. The owner is not in any case liable for rates unless the property exceeds R1 5 000. Land reform beneficiaries are excluded from rates for 10 years. Thereafter. municipalities have to phase their rates in over three years. For most municipalities. the cost of valuation and administration of rates will exceed any revenue derived from these properties. The levying of property rates in traditional authority areas is certainly not on the agenda for a very long time to come.

6. Instead of providing for blanket exclusions from rates for categories of owners or properties, the Portfolio Committee strengthened provisions in the Bill dealing with:

a) the phasing-in of rates;

b) the requirements for municipalities to consider, in their rates policies, the effects of rates on categories of owners and properties;

c) negotiations between categories of owners and properties and the municipalities and SALGA; and

d) consultation between the Minister and SALGA on the effects of rates on categories of owners and properties.

7. While an explicit provision to this effect was not included in the Bill, the Portfolio Committee believes that municipalities should in their rates policies take into account the effect of rates on promoting the conservation of threatened ecosystems and the sound management of natural resources.

8. Municipalities might also want to consider how they could use their rates policies to offer incentives to attract private sector investment.

9. As set out in clause 17, the official residence of an appropriate office-bearer of a religious community is excluded from property rates. However, the Portfolio Committee recognizes that some religious communities provide a subsidy to the relevant office-bearer to buy a residence registered in his or her name. Should evidence of this be provided, municipalities should consider exempting such residences from property rates as if they were registered in the name of the religious community. The Portfolio Committee is also aware that properties registered in the name of individuals, and not a religious community, are genuinely used by some religious communities as sites of worship. Where evidence of this is provided, municipalities should consider exempting these properties from property rates. The Portfolio Committee was also informed that the exclusion of these residences has led in some cases to speculation in such properties. To deter this religious communities will be required in terms of section 17 to pay rates in arrears for one year before the date of sale of these official residences.

10. In deciding on rates for independent schools, municipalities should take into account that independent schools vary greatly, and it might be necessary, where possible, to consider each independent school on the basis of its particular circumstances. Following discussions with the Department of Education, it is suggested that in deciding on rates for independent schools, municipalities take into account the South African Schools Act and the national norms and standards for the funding of independent schools.

11. The Bill provides for the exclusion from property rates of 30% of the value of public service infrastructure. However, where municipalities are levying rates on the full value of some aspects of this infrastructure, they may continue to do so until they finalize a valuation roll in terms of this Bill. The Democratic Alliance(DA) does not support the 30% exclusion on the value of public service infrastructure.

12 The general principle in the Bill is that municipalities should value and rate all properties within their jurisdiction. This contributes to the White Paper’s objective of broadening the rates base so that municipalities can have adequate revenue to meet their constitutional objects. It is also important that municipalities have as full a sense as possible of the value of properties within their jurisdiction. This is in the interests of transparency and will also give municipalities a more accurate sense of the revenue that is being foregone. This would also be of value in negotiations around money to be allocated by national to local government. In certain instances, however, municipalities are not obliged to value or rate properties. These include:

(i); those which are fully excluded from rates and which it does not make sense to yalue (such as the Prince. Edward Islands and mineral rights);

(ii) those for which it is difficult to establish a value (for example, because of past discriminatory laws and practices);

(iii) municipal properties; and

(iv) public service infrastructure owned by municipal entities.

13. The Committee stresses that the Bill does not prescribe that property rates must be levied in traditional authority areas. Each municipality must decide for itself on this. But property rates cannot be levied unless there is individual ownership in communal areas. Even where there is individual ownership the property has to be first valued. The owner is not in any case liable for rates unless the property exceeds R15 000. Land reform beneficiaries are excluded from rates for 10 years. Thereafter municipalities have to phase their rates in over three years. For most municipalities. the cost of valuation and administration of rates will exceed any revenue derived from these properties. The Portfolio Committee does not believe that the levying of property rates in traditional authority areas is on the agenda for a long time to come.

14. As the range and extent of properties to be valued in terms of this Bill have been significantly increased, questions have been raised about the capacity of property valuers in this country. Moreover, with advances in technology, there are constant changes in valuation techniques and methods. The Portfolio Committee believes that the Department of Provincial and Local Government (DPLG) and SALGA should inquire further into these questions and facilitate greater awareness among municipalities about these issues, and should take appropriate steps to facilitate the development of the requisite capacity of valuers. The Ministry and SALGA should as soon as possible provide guidelines on valuation for municipal valuers. especially in regard to the valuation of public service infrastructure.

15. The Bill provides for district municipalities to levy rates only in district management areas. However, district municipalities are fulfilling certain functions previously undertaken by local municipalities. These functions were previously funded in part by the rates revenue of local municipalities. The Ministry and DPLG might want to consider a rates revenue-sharing formula between district and local municipalities in these cases. The Constitution in any case provides for the division of fiscal powers and functions between district and local municipalities.

16. In their rates policies municipalities are required to take the concerns of farmers into account. Properties used for trading in or hunting of game are not included in this. Municipalities should consider each such property on its specific merits as to whether it qualifies for consideration in the way farm properties do. The DA believes. however. that all properties used for trading in or hunting of game should be treated as farm properties.

17. As set out in clause 3 (2) e, municipalities are required in their rates policies to take into account the effect of rates on public benefit organizations PBOs) registered in terms of the Income Tax Act. if they own property. However the Portfolio Committee recognizes that there are many legitimate PBOs that are not registered. Hence in clause S n) provision is made for the properties of PBOs generally. whether registered or not. to be recognized as a category. In terms of this latter provision. municipalities should consider the effects of rates policies on the unregistered PBOs should they provide adequate evidence of their public benefit activities.

18. The Bill specifically excludes properties in part or whole from being subjected to property rates. For example, the first RI 5 000 of all residential properties and 30% of the value of public service infrastructure are excluded from rates. Land reform beneficiaries are also excluded from rates for a ten-year period, and thereafter their rates have to be phased in over three years.. This represents

revenue foregone by municipalities. The Portfolio Committee believes that the national government should, over time, consider this when deciding on the allocation of money to local government from the national fiscus.

19. The Bill represents a significant shift from the current property rates regime. The Portfolio Committee urges DPLG and SALGA to embark on a massive public education program on the content and implications of this Bill. Many municipalities do not have the capacity to implement this Bill. DPLG and SALGA will have to give considerable attention to this. The Portfolio Committee would like DPLG to give a report on its progress in this regard by the end of this year.

20. Ultimately, decisions about levying rates resides with municipalities. This Bill will bring into effect a significantly new system of property rates. As with much else of the new local government system, the new property rates system has to be phased in appropriately through consultation with a range of stakeholders. The Portfolio Committee has sought to strike a series of balances between the needs of municipalities and a range of key stakeholders. We have also provided for the phasing in of aspects of the new property rates system. Municipalities are urged to exercise their power to levy rates both in the spirit and letter of the law. DPLG and SALGA have a crucial role to play in this regard - and we urge them to do so. Members of our Portfolio Committee and MPs generally can also play a role -and we must do so.

21. The Portfolio Committee expresses appreciation for the manner in which a range of stakeholders interacted with us in finalizing the Bill. The Committee also expresses its sincere appreciation to Ms Jackie Manche Mr Mizilikazi Manyike Dr Peter Vaz. Mr Gerrit Grove. Mr Joe Dube and Dr Petra Bouwer of DPLG. and Mr Ben Dorfling and Ms Shiva Makotoko of SALGA for the considerable work they did in processing the bill through their interaction with the Committee and many stakeholders. The Committee also acknowledges the assistance of Mr Nico McLachlan and Ms Zora Ebrahim of Organisation Develonment Africa.