MFPFB-1
BUSINESS PARLIAMENTARY OFFICE
Representing Business Unity South Africa (BUSA) and Chambers of Commerce and
Industry (CHAMSA)
Memorandum of Comment to the Parliamentary Portfolio Committee on Finance
1. Introduction
BUSA is a confederation of chambers of commerce and industry (CHAMSA),
professional associations, corporate associations and unisectoral
organisations. It represents South African business on macro-economic issues
that affect it at the national and international levels. BUSA's function is to
ensure that organised business plays a constructive role in the country's
economic growth, development and transformation and thereby create an
environment in which businesses of all sizes and in ali
sectors can thrive, expand and be competitive. BUSA also represents business'
interests in the National Economic Development and Labour Council (NEDLAC).
BUSA welcomes the opportunity to make comment on the Municipal Fiscal Powers
and Functions Bill.
2. General Comment
2.1 The purpose of the Bill, as set out in section 2, is to give
substance to the constitutional right of third tier government to impose
surcharges on service fees and to impose other forms of taxes/levies -
conditional to authorisation from the Minister of Finance. Thus by way of
regulatory powers the Minister can ensure that the economic activity within a
local authority is not 'prejudiced' by any fiscal measures introduced by a
third tier government structure. In some respects the proposed legislation
strives to strike a necessary balance between democratic government and
efficiency. After all, affordable and efficient service delivery is a common
requirement of all citizens in a local government area, whether they are
regarded as voters or as customers.
2.2 While acknowledging the right of municipal structures to impose
levies and surcharges, it must be recognized that it introduces a taxation
mechanism that although under the constraining hand of the Minister of Finance
does give rise to an additional tax burden. BUSA has already noted in an
earlier submission to the Portfolio Committee on Finance (2007/08 Budget
Hearings) that the tax to GDP ratio has been moving further from the unofficial
target figure of 25%. In 2006/07 the ratio stood at 27, 9%. If an element .of
current tax policy is one of lowering tax rates in order to place South Africa
in a more favourable competitive position as an investment destination, then
municipal tax/levy/surcharge measures must surely be offset by a reduction in
the current corporate tax rates. A minimum requirement would be that any
additional local tax/levy or surcharge should be income tax deductible (as was
indeed the case with the previous RSC levy).
3. Specific Comment
3.1 Consultation
Chapter 2, section 4 requires (must) the Minister to consult with the Minister
of Local Government, organised local government and the Fiscal and Financial
Commission. It also allows (may) him to consult with
any other organ of state or interested party. The consultation provisions of
section 5 (h) are perfunctory in nature. Except for a provision in section 9
(3) relating to annual budget preparation, the legislation provides for no
satisfactory consultation mechanism with stakeholders likely to be affected by
any tax/levy measures. BUSA would submit that, as with municipal budgets and
property rates, provision is set out for stakeholders (including business) to
be drawn into the consultative process. If nothing else, it would accommodate
the objective of transparency.
3.2 Dispute Resolution
BUSA believes that an appropriate mechanism be incorporated (either in the Act
itself or in the accompanying regulations) to accommodate dispute resolution
procedures. From the experience of business in meeting their previous RSC / JSB
levy obligations, disputes will inevitably arise.
3.3 Local Government Capacity
A tax system stands or falls by its ability to
effectively administer and collect taxes that are due. Again drawing from
experience, BUSA must express its .concern as to fragile capacity in many
municipality structures, the consequence of which casts doubt on their ability
to collect taxes efficiently and equitably. This together with other managerial
weaknesses, raises the question as to whether such shortcomings provide
justification for certain municipalities to be granted exemption from
compliance to standards and norms {section 9 (1) (b)}. BUSA has misgivings over
providing for such exemptions. It surely undermines the very system of local
government and is in sharp contrast to the governance objectives of the
Municipal Finance Management Act.
3.4 Local Government Overlap
In circumstances where potential levy-payers are subject to two municipalities,
it is unclear as to what payment obligations will be determined. It would
surely be unsatisfactory for both local and district municipalities to be
authorised to levy/tax the same people. For example, where a District provides
no services to residents in an area adjacent to a local municipality, it is
clearly not possible to impose a surcharge on the basic tariff.
3.5 Application Authorisation (section 5)
BUSA believes that the application authorisation requirements are suitably
detailed. It would wish that such levy funds would be used specifically for
infrastructure provision, upgrading and maintenance as was the original