Municipal Property Rates Amendment Bill [B33-2013]: Department of Cooperative Governance and Traditional Affairs briefing

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Meeting Summary

Property Rates Amendment Bill: Department of Cooperative Governance and Traditional Affairs briefing
The Department of Cooperative Governance and Traditional Affairs (COGTA) briefed the Committee on the Property Rates Amendment Bill, specifically the changes that had been effected to the original Bill by the National Assembly’s Portfolio Committee, following the public engagement process. The first change was the removal of a reference to “game farming” from the revised definition of “agricultural property” so the position reverted to what was currently in the Municipal Property Rates Act (the Act), where the two activities were separately defined. This was done to counter fears that inclusion of game farming may encourage people to try to claim the 75% rebate. Secondly, municipalities would in future be able to add further sub-categories of property in addition to those specified in section 8 of the current Act, for good clause. A fifteen-month requirement would allow for sufficient notice to the Minister and time for the municipality to implement the change within the financial year. A transitional seven-year period was also included. The third change allowed the Minister to limit a property rating if a certain sector was able to persuade the Minister that it was too high, but it was clarified that the rating would not apply retrospectively.

The fourth change was essentially clarifying that places of public worship were zero-rated, but changes were made to make it clearer that only one residence of “the” office bearer of a religious institution may be zero-rated, as some institutions had applied for zero rating on several. The fifth amendment related to periods of validity of valuation rolls under section 32 of the Act. The original Bill had proposed extensions of validity to five years, with another two on application. The Portfolio Committee, however, decided to keep the validity period at four years, for Metropolitan Municipalities, given the greater property market mobility, but to change it to five years for areas outside metropolitan municipalities, with the possibility of an extension of another year. The sixth amendment clarified that Professional Associate Valuers may, if no professional valuers were available, also serve on the Valuation Appeal Boards, if they had ten years experience and were not restricted in what they may value. The seventh amendment related to zero-rating of infrastructure such as roads, railways, airport aprons and runways, dams and breakwaters, which the original Bill said should be phased out in three years, but, after submissions by municipalities, the phasing-out was extended to five years.

Members were appreciative of the clear presentation. Several questions were raised on hw game farming would still be covered, and the multi-use concept was explained. One Member suggested that municipalities should be careful to demarcate their rating more clearly. Members asked if COGTA was doing anything to address the large sums that municipalities were charging for the sale of land to churches, which seemed to fly counter to their acceptance that such churches could be zero-rated, and also asked if COGTA could do anything about excessive rentals being charged in some areas. It was explained that neither of these matters was within the mandate of COGTA, and furthermore that questions about the income being earned by some churches, and the lifestyles of their officials, was a matter for SARS and was not linked to property rates. A Member asked if there had been any comment from the churches about the changes effected by the Bill, but when another Member suggested that this Committee ought to address the question of whether a zero-rating was appropriate, COGTA, the State Law Advisers and other Members, made the point that at present the Bill did not affect the status of places of public worship, and should this Committee seek to add it to the Bill, it would be controversial and would probably require further hearings. The Chairperson ruled, in relation to other questions raised about the business practices of places of worship, and land development issues, that they were irrelevant to the current Bill. Members sought clarity on what parts of airports would be zero-rated and what effect this would have on municipalities.
 

Meeting report

Property Rates Amendment Bill: Department of Cooperative Governance and Traditional Affairs briefing
Mr Mizilikazi Manyike, Executive Manager, Department of Cooperative Governance and Traditional Affairs, indicated that the briefing by the Department of Cooperative Governance and Traditional Affairs (the Department or COGTA) would take the Committee through the most substantive provisions in the Bill, indicating where changes had been made to the original version tabled to Parliament, during the National Assembly (NA) process.

Ms Veronica Mafoko, Senior Manager: Municipal Finance and Viability, Department of Cooperative Governance and Traditional Affairs, said that the amendments she would describe came about as a result of the engagements in the public submissions and discussions in the NA’s Portfolio Committee. She reminded Members that there had been an early briefing on the Bill as tabled.

The first change related to a definition. The original Bill had included game farming in the definition of “agricultural property”. The Portfolio Committee had quite extensive engagements on this issue but finally felt that it was inappropriate that agricultural property should include game farming, so the current Bill did not have that included under the definition of agricultural property. The activity of game farming did not substantially contribute to “food security” in the country. There were engagements around the question that game could be eaten, but the point was made that it was eaten by very few people in the country, and not for basic subsistence, but as a luxury or unusual foodstuff. There were fears that inclusion of game farming may encourage people to convert their arable land to game farms, in order to get the 75% rebate, and it was felt that this was not appropriate in view of the country’s needs.

The second issue concerned the changes to section 8 of the Municipal Property Rates Act (the Act), which dealt with a framework for property categorisation (whether a property was classified as residential, commercial and business, industrial and agricultural). The Bill’s handling of the matter was revised following submissions from some municipalities that they were too hamstrung in what they could do. The revision was done to allow municipalities to include further property categories, in addition to those set out in section 8, but they must only do so for good cause. Section 8 was supposed to allow for transparency in the property categorisation framework, to allow for better monitoring and oversight and so that owners could know what category their property fell into. If municipalities wanted to sub-categorise further, they may do so, by applying to the Minister to do that.

Ms Mafoko read out the new clause 4(a) (see attached document, pages 1 to 2). She noted that the fifteen-month requirement was to give the Minister sufficient time to respond and for the municipality to implement the change within the financial year. This was quite a large shift, and so the Department had also provided for a transitional arrangement, for the changes to be effected within seven years of the effective date of this Act. This would avoid destabilising the municipalities.

The third issue amended by the Portfolio Committee related to section 16, which presently allowed the Minister to protect sectors of the economy if the Municipality should subject them to excessive rating. Originally, the Bill permitted people to approach the Minister, but the change now essentially said that instead of the previous provision, the Minister may issue a notice limiting the cent-in-the-rand rate to be levied. In effect, a sector may say that it was of the view that rate x was too high, and it would need to support that with further information. The Minister could then limit that rate, if s/he was satisfied that this was appropriate. When the Minister issued the notice, s/he must give an effective date in the notice. The reason for the change was a concern that the way in which the Act had been worded might give certain sectors an expectation that retrospective rating would apply, because the rates may have been implemented in the last two years. It was not intended that any rates should be repaid, and this provision made it clear that any rates imposed would not be retrospective. She read out the amended section 16(2)(b) (see page 2 of attached document).

The fourth issue amended by the NA’s Portfolio Committee related to places of public worship and official residences related to them. It was agreed by the Committee that section 17(1)(i) of the Act should be amended, to make it clear that only one office-bearer’s official residence, registered in the name of the religious community, would be excluded from rating. At the moment, no rates were paid on places of public worship, and at the moment the officiating official’s residence was also nil-rated. However, in practice, religious bodies had requested that numerous residential properties be excluded from the rating, some of which might be owned by the place of public worship, but others not. In some municipalities, particularly rural ones, this could be quite crippling to their income if all the property linked to the place of public worship was exempt. The amendment thus sought to limit the nil rating to one residence only, and there was a reference to “the” and not “an” office bearer.

The fifth amendment related to section 32. Originally, the Bill contained amendments to extend the period of validity of a valuation roll to five years, and for the MEC to extend the period of validity by an additional two years, if municipalities applied in exceptional circumstances, or where the municipality was subject to a section 139 intervention. However, after public submissions that suggested that it was not appropriate to extend that period, the Department of Cooperative Governance and traditional Affairs (COGTA) had agreed that some of the proposals could be withdrawn. The Portfolio Committee had decided that the period of validity of the valuation roll should be retained as four years, for Metropolitan Municipalities. It was felt that the property market in metro areas, and larger cities, was very active, and to allow for a longer period would disadvantage property owners. For municipalities outside those areas, it was decided that the period should be changed, to five years, as the property values there did not change as much. In addition, a lot of money was spent in preparing valuation rolls, particularly where the municipalities outsourced this function, and they ended up not recovering the money they had spent through rates. It was felt that the five-year period would allow them to break even.

Ms Mafoko added that nothing stopped any Metro, if it had the resources, from using a shorter period – such as Cape Town and Gauteng (some of which attended to drawing a new roll every year).

Coupled with those revisions were proposals around the MEC extending the validity, by an additional year.

Amendments were also made to include “a professional associated valuer” with ten years experience and without restrictions, as a member of the Valuation Appeal Board. This was because of the shortage of professional valuers in the country. There had been difficulty, in several provinces, in setting up Appeal Boards because of the difficulty in attracting professional valuers. The Portfolio Committee had retained the proposal but had slightly changed the focus. Ms Mafoko explained that the qualifications of professional valuer, and professional associated valuer did differ. The new focus was that, wherever possible, a professional valuer would be sought to sit on the Valuation Appeal Board, but where that was not possible, then an associated valuer, who was allowed to value any property, and who had ten years experience, could be appointed instead.

The last amendment related to some zero rated infrastructure. The original Bill had excluded certain public infrastructure from rating, such as roads, railways, airport aprons and runways, dams and breakwaters. That was retained. However, municipalities indicated that they needed a longer time to phase out the rating for such infrastructure, which was currently rated by several municipalities. The Bill had initially given them three years to phase it out, but after submissions, the Portfolio Committee decided to extend this to a five-year phasing out period. The rating would be reduced proportionately, every financial year.

Ms Mafoko said that all other revisions wee technical in nature and she did not feel that they needed to be specifically addressed here.

Discussion
Game farming issues
Mr J Gunda (ID, Northern Cape) thanked Ms Mafoko for the briefing. He was still concerned about the game farming rating. He wondered how the rating was relevant for game farms in Limpopo, when between eight to eleven golden buffaloes were sold, for about R500 000 each.

Mr A Matila (AN, Gauteng) was happy to hear the briefing in relation to the game farming. This Committee had indicated, previously, that game farming was a luxury institution.

Mr L Nzimande (ANC, KwaZulu Natal) asked to hear the impact of the exclusion of game farming from the definition. He wondered if they were covered somewhere else for he felt there should not be total exclusion.

Mr Manyika said that the Act dealt with properties that were “multi-use”. Valuers who were trained to deal with these issues might report that different activities were carried out on certain parts of the land. Municipalities and their valuers were allowed to apportion already – with perhaps some of the land being rated as agricultural, but other portions as residential. A farm might be used for cropping, livestock, or beneficiation of foodstuffs, and it may be appropriate, for instance, to classify a portion of it as business or industrial.

Specifically in relation to game farming he explained that the Portfolio Committee had reversed the decision to include “game farming” under the definition of “agricultural property”.  The original Bill had proposed bringing the two definitions together, but the Portfolio Committee reversed that, so that they remained dealt with separately, as they were in the Act at the moment. He read out the definition for “agricultural property”, stressing that it referred to land primarily used for agricultural purposes, but without derogating from section 9 (mixed property areas), but that excluded commercial or hospitality or gaming aspects. Hunting, lodges and so forth would remain rated, but they would be rated under their own categories.

Mr J Bekker (DA, Western Cape) congratulated Ms Mafoko on a fine presentation. He was not specifically opposed to anything in the Bill but was worried that lines had to be clearly drawn on farms – when they concentrated on agriculture, the game aspects, the residential properties. He was worried that municipalities were not always doing so.

Land cost issues
Mr Gunda felt that the revisions in relation to the residences attached to places of public worship were commendable. However, he asked why, on the one hand, municipalities recognised that churches needed to be zero-rated, they would, on the other, when selling land to people for the express purposes of building a church, sell that land at market value, and even put the land out to tender. He cited a particular case in Upington municipality where this had happened, and the religious community had in fact lost the land by not being able to come up with the final tender price.

Ms Mafoko said that this concern related not so much as the rating, but the process followed in putting land up for development. She said that the concerns were well-founded, but this was not something that was covered by the Bill, because they were related to land development.

Mr Gunda asked if the Department could do anything to assist local communities in regard to rental costs of residential property, which were very high. People in Upington were hiring out their two-roomed houses for huge rental to those working on the solar park, leaving the people of Upington without recourse to affordable accommodation.

Mr Manyike said that rental issues fell under the Department of Human Settlements, not his own Department, so that COGTA could not deal with that matter.

Rating of churches and residential property belonging to churches
Mr Matila said that one of the largest industries in South Africa was religion. Churches were making substantial amounts of money and he wondered why, in principle, they were being excluded from rating. Pastors and religious leaders were driving luxury vehicles and wearing fine clothing. He felt that it was unfair to punish the poor, which was essentially what this Bill was doing, at the expense of the rich churches such as Rhema. He felt that there was a mismatch. He also commented that the officials of the church were living in luxury houses. The wrong message was being sent out to the public. These were not so much places of worship as businesses. He said that municipalities would be getting poorer if this situation continued. He asked what the purpose of the Bill was.

Mr Nzimande also raised a query on the places of public worship. He would be interested to hear what the response was of the Catholic Church, for instance, in relation to its numerous missions and other churches that had schools and hostels that were running commercially. Some of the missions were so large as virtually to be villages.

Mr Manyike said that before the questions themselves were answered, he wanted to clarify what decisions had been taken up front. The Municipal Property Rates Act was taken as a baseline, and the COGTA had merely attempted to isolate any particular areas of concern or challenges and address those in this Bill. The rates-exclusion of properties used by religious communities for public worship was actually covered in the Act, and had not been touched upon in the Bill.

Ms Mafoko agreed that the Act, as it stood, excluded places of public worship from rating, and the amendment merely clarified that the zero-rating also applied only to the primary residence of the place of public worship. The Bill has not actually effected any fundamental change and no particular submissions had been received from the churches in that regard, probably because their position was not being altered.

Mr Manyike noted that the concerns around the value of houses built or occupied by officials of churches no doubt related to the media reports that a particular pastor had, in about 2003, put up his private residence for sale for R10 million. The NA Committee was aware of that. There were huge differences between religious communities – some were immensely wealthy and others met in public places as they did not even have a building. The public worship places and communities may raise money through tithes or other ways. He also wanted to make it clear that matters relating to income tax and property ratings were dealt with differently. COGTA did not deal with any issues of revenue, as that would fall under the National Treasury. If churches were not paying taxes, that was a decision by SARS and the Minister of Finance. The only matter covered by the Bill related to the residences of the places of public worship. Neither the municipalities nor the South African Local Government Association (SALGA) had indicated that they had difficulties with rating of places of public worship in principle.

Having said that, he did understand the points raised by Mr Matila. The United States churches, in the United States itself, also were facing questions about their own income and businesses and questions were being asked whether it was not time to overhaul the income tax dispensation. One of the Portfolio Committee Members indicated that he had written to the Minister of Finance about income tax matters, and also had written to the Minister of Police in relation to allegations of money laundering through the churches.

Commenting on Mr Matila’s question whether this Bill was attempting to help the poor, Mr Manyike said that municipalities, through their rating system, decided on whether to exempt the poor from rating, (or residential exclusion), or to assist them with other methods. For instance, the City of Johannesburg had taken a decision that for residential properties less than R150 000 market value were excluded from rating. It was not always possible to come up with a uniform approach on a national level.

Exclusion from ratings: airports
Mr Nzimande questioned the exclusion of airports from rating. There were public service areas. He asked what the impact would be of making these exclusions. He indicated that there was growth in airports, and some airstrips were used for commercial purposes.

Mr Manyike said that, taking Cape Town Airport as an example, there was indeed a commercial part, and that was not being excluded from rating. The only excluded portions were the runways and the parking areas. Similarly, for water ratings, the buildings and other properties owned by Rand Water would be rated, but water-related infrastructure could be excluded.

The impact of these exclusions were set out in the Memorandum of the Objects of the Bill, in relation to the financial implications for municipalities. However, what this did not emphasise was that the conditional grants also impacted.

Market value of properties
Mr Gunda repeated his question why, if places of public worship were being excluded from the rating, municipalities were still intent on selling land for setting up places of public worship at such high prices. He was not happy to see the mention of specific churches, but since this had been raised, he commented that Rhema, for instance, had private schools and was worth about R55 million. However, the poor community churches could not even own any property because they were being charged market-related prices. He was also hugely concerned that the apartheid-erected churches were enormous, yet currently the newer or community churches were not able to afford anything.

The Chairperson asked that the questions of land development not be dealt with as this was not something covered in the Bill.

Mr Matila also repeated that he understood that the Act excluded places of worship. However, the question was what the government wanted to do about their businesses. They may be called places of worship, but he wondered if South Africa should not look into the reality that they were running businesses. The Committee was not dealing with tax matters, but it was dealing with development aspects. The Select Committee on Petitions had recently visited a site in Soweto where the church had a huge and expensive sound system that was causing great distress to the community around it.

Ms H Boshoff (DA Mpumalanga) raised a point of order. This Committee did not deal with land values or problems around churches, and she thought it should not be discussed in this meeting.

Mr Matila said that he was trying to give context to property values.

The Chairperson called him to order. He asked if the Committee wanted places of worship to be rated or not. That was the crisp question.

Mr Nzimande said that if this was not part of the Bill, he did not think that the Committee could go back and discuss what was in the principal Act.

Ms Mafoko confirmed that the rating of places of public worship was not in the Bill, because they were zero-rated already, in terms of the Act and the Bill was not changing that. The Bill only sought to clarify which of the residences attached to a place of public worship would be zero-rated.

The Parliamentary Legal Adviser, said that the clarification was clearly intended to refer to only the single residence, but she could prepare an opinion for the Committee, if it wished, on whether the reference to the definition of a place of public worship would entitle the Committee to go any wider in making any other amendments.

Mr Gunda asked that she should do so and the Committee could take a decision on that next week.

Mr Matila agreed with Mr Gunda.

Ms Harriet Mekwa, State Law Adviser, Department of Justice and Constitutional Development, said the point to consider was whether the changes were technical or not.

Mr Matila raised a point of order; that the Bill was now with the Committee, which had decided that it wanted to hear further from the Parliamentary advisers.

Mr Nzimande said that the Committee would need to assess the substantive nature of what it wanted to do. The Committee would need to decide if the amendments were achieving their intended purpose. Should the Committee want to introduce more amendments, the Bill may lapse, and he was not sure whether the Committee would want to do that. The Committee could express its views, in the Committee Report, that the current amendments were limited. If the Committee were to decide that it wanted no places of public worship to be zero-rated, this would be a substantial change, and the Committee would have to go to public hearings, which would not be possible in view of the time remaining.

Ms Mafoko said that it was indeed up to the Committee to take a decision. She heard the Parliamentary Legal Adviser’s comment on the amendments to section 17, which were related to places of public worship, but she made the point that those definitions did not touch on the rating of the places of public worship, merely clarified what the places and residences were, within the framework of the current Act. She agreed that whether or not to rate was a much larger issue that would require more time, should the Committee wish to consider that matter. The Committee would need public hearings and they were likely to be controversial.

Mr Manyike repeated that COGTA believed that none of the religious organisations had given any input on the Bill because the current amendments did not affect their status. If there was to be a change around their rating then the Committee would have to engage with the religious institutions on that point, as it would represent a major policy change.

The Chairperson added that if changes were made to ratings, it might also affect other legislation.

The Chairperson asked that the Parliamentary Legal Advisers expand on Rule 249 at the next meeting, in brief. He reminded Members that there were inputs made to the NA, set out in tabulated form (see attached document) which Members should study. He said that the Bill may not be perfect, but it was addressing many of the current problems facing municipalities.

The meeting was adjourned.  
 

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