SOUTH
AFRICAN LOCAL GOVERNMENT ASSOCIATION
PORTFOLIO COMMITTEE ON FINANCE, PUBLIC HEARINGS 9 MAY 2007.
A. INTRODUCTION
The
submission provides SALGA’s commentary and proposals on Amendments to the Municipal
Fiscal Powers and Functions Bill 2007.
B. BACKGROUND
1. Constitutional
Imperatives
1.1
Section 229 (1) of the Constitution
empowers municipalities to impose municipal surcharges on fees for services
provided by them or on their behalf.
1.2
Municipalities may also, if
authorised by national legislation, impose other taxes, levies and duties
appropriate to local government or to a category of local government into which
that municipality falls, but excluding an income tax, a value added tax,
general sales tax and customs duties.
1.3
The constitutional powers given to
municipalities to impose municipal surcharges on fees for services provided by
them or on their behalf may be regulated by national legislation.
1.4
The national legislation which
either authorise “other taxes, levies and duties appropriate to local
government” or regulate a municipality’s right to impose rates on property and
surcharges on fees for services provided, may be enacted only after organised
local government and the Financial and Fiscal Commission have been consulted.
2. Current Practice
As
is specifically provided for by the constitution, municipalities have been engaging
in the practice of imposing municipal surcharges on fees for services provided
by them or on their behalf. In addition, prior to
C. COMMENTS ON THE MUNICIPAL FISCAL POWERS
AND FUNCTIONS BILL
1. Definitions and interpretation
“Municipal
base tariff” is defined as “the fees
necessary to cover the actual cost associated with rendering:-
a.
Municipal
service, and includes a bulk purchasing cost in respect of water and
electricity reticulations services, and other municipal services,
b.
Overhead,
operation and maintenance cost,
c.
Capital
cost,
d.
A
Reasonable rate of return, if authorised by a regulator of or the minister
responsible for that municipal service,
e.
Administration
and regulatory cost”.
With
specific reference to sub-clause (e) of the definition it might have the
implication that a service will carry costs which is not based on the actual
delivery of a service or municipalities will not use the same costing system
and principals to calculate this. The calculation of this particular cost can
thus vary from municipality to municipality and as a direct consequence might
create inconsistency between the municipalities.
SALGA recommends: - To ensure consistency
“administration and regulatory” costs should be defined in terms of shared
services and actual service delivery costs. Furthermore the costing system
should be based on ABC costing.
2. Objects of the Act
The
bill primarily deals with the following:-
·
the authorisation of municipal taxes
by the Minister;
·
the application process for
authorisation;
·
the Regulations regarding imposition
and administration of municipal taxes;
·
the collection of municipal taxes;
·
norms and standards;
·
obligations of a municipality in
respect of municipal surcharges;
·
Development of Regulations;
·
amendments to the act; and
·
Transitional arrangements after
promulgation.
However,
under clause 2 (d) of the objects of the Act, it is said that the bill provides
for “an appropriate division of fiscal powers and functions where two
municipalities have the same fiscal powers and functions with regard to the
same area in accordance with section 229 (3) of the constitution”. When
considering the substance of the bill, as outlined above, it is clear that this
is not an accurate reflection of the contents of the actual bill.
SALGA Recommends: - The
inclusion of clause 2(d) creates a wrongful impression that this particular
area is dealt with in the bill, which when one considers the contents of bill
is not the case. To avoid this wrongful impression it is our opinion that clause
2 (d) should be deleted from the bill.
3. Application of Act
This
bill, when enacted, will be applicable to and regulate municipal surcharges and
municipal taxes referred to in Section 229 of the Constitution, other than rates
on property regulated in terms of the Municipal Property Rates Act, Act no 6 of
2004. It is critical to take cognisance of and recognise the fact that
municipal user charges, which are also critical components of municipal fiscal
powers and functions, are regulated under the Municipal Systems Act, Act no 32
of 2000 and the Municipal Finance Management Act, Act no 56 of 2003.
SALGA Recommends: - In
order to provide absolute “predictability, certainty and transparency in
respect of municipal fiscal powers and functions”, as sought by the enactment
of this legislation, explicit provision, by means of an additional clause,
should be made that the act will not be applicable to municipal user charges
which are already regulated under the Municipal Systems and Municipal Finance
Management Acts.
4. Application for
Authorisation
Clause
5 of the bill makes provisions for a set of requirements or areas that need to
be satisfied by a municipality, a group of municipalities or organised local
government in an application for authorisation to levy a municipal tax. This
set of requirements is very comprehensive, but in the same breath very
prescriptive and onerous to comply with. In addition excessive costs may be
associated with obtaining/ascertaining all the relevant technical data
necessary for making an application for authorisation.
SALGA Recommends: - The
recommendation is not necessarily an amendment to clause 5, but instead drawing
attention to the cost as well as compliance implications of this provision. Consideration
should be given to, post enactment of the bill; provide for implementation
support to municipalities and/or groups of municipalities to enable them to comply
with this particular clause of the bill.
5. Regulations regarding imposition and
Administration of Municipal Tax
Clauses
6 (d) (ii) and (iii) provide that the regulations may “in respect of a specific
purpose tax, limit the purpose for which revenue derived from the collection of
the municipal tax may be utilised” and the regulations may “specify that a
percentage of the revenue derived from the collection of the specific purpose
tax must be utilised for a specific purpose”.
SALGA recommends: - The
objects of the bill are, in line with the provisions of Section 229 (1) (b), to
regulate the exercise by municipalities of their power to impose municipal
surcharges and regulate the exercise of their power to impose taxes, levies and
duties. If so, it is our view that clauses 6 (d) (ii) and (iii) of the bill encroach
upon a municipality’s constitutional autonomy to determine its budget and / or
spending, which is, as indicated above, beyond the intended regulation of a
municipality’s power to impose or raise municipal taxes. It is our opinion that
clauses 6 (d) (ii) and (iii) should be deleted.
D. FINANCIAL IMPLICATIONS
OF THE BILL
National
Treasury’s assessment is that “there may be financial implications for those
municipalities where existing surcharges raised are excessive and will need to
be reduced on implementation of the norms and standards for surcharges”. It would be interesting to ascertain whether
during the development of the policy framework with regard to the regulation
envisaged National Treasury has conducted any research on the actual financial
impact on municipalities.
The
concerns around costs implications for municipalities with making the
application for authorisation of a municipal tax is already dealt with under
paragraph C (4) above, but SALGA would appreciate some clarity from National
Treasury as to the detailed envisaged costs relating to this onerous and
prescriptive process.
E. CONSULTATION PROCESS
As
required by Section 229 of the Constitution, organised local government should
be consulted when national legislation is envisaged to regulate the exercise of
a municipality’s power to impose surcharges on fees for services provided by
them or on their behalf and regulate the exercise of their power to impose
taxes, levies and duties. It is confirmed that National Treasury embarked on a consultation
process, at a technical (officials) level, which included a written invitation for
comments from SALGA, as well as a workshop with SALGA and other stakeholders (including
the Financial and Fiscal Commission).
SALGA’s
written response to the National Treasury invite for comments placed on record
that the comments, given the timeframes within which they were requested, have
not gone through a SALGA political mandating process and as such should not be
construed as having consulted with SALGA. It was further emphasised that for
purposes of consultation SALGA has on numerous occasions expressed the view
that until SALGA political principals are duly presented with a document of
this nature, either in a properly constituted intergovernmental relations
structure or to the Chairperson of SALGA or his duly delegated nominee, SALGA
has not been consulted. A proposal was made for the bill to be tabled at the
Local Government Technical MinMec followed by the Local Government MinMec, in
August 2006 and September 2006 respectfully. It is our view that National
Treasury should perhaps shed some light on the political consultation followed
with SALGA.
F. CONCLUSION
In
conclusion, SALGA believes that the bill will indeed give rise to more
“predictability and certainty in respect of municipal fiscal powers and
functions”. However, the recommendations proposed above are firstly, to promote
the best interest of municipalities and secondly, to ensure compliance with the
intent and terms of the relevant provisions of the Constitution.