Property Rates Bill: briefing on conceptual issues

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
30 May 2003
PROPERTY RATES BILL: DELIBERATIONS; CONCEPTUAL ISSUES OF BILL: BRIEFING

Chairperson: Mr Y Carrim (ANC)

Documents handed out:
Local Government: Property Rates Bill (B19 - 2003)
Conceptual Issues on the Property Rates Bill: presentation by Organisation Development Africa
General Comments on Hearings by G Dunkley (International Union for Land Value Taxation)

SUMMARY
The Committee concluded its informal deliberations on Chapter 9 of the Bill.

Organisation Development Africa presented the first batch of conceptual / policy issues that the Committee needs to address:
- the purpose of property rates
- the (normative) objectives of the Bill
- the issue of what to value, that is, land vs land and improvements
- the issue of how to rate, that is, flat rating, site value rating or composite rating.

The presentation looked at the UK system of property taxes as far as it addresses the concept of banding and rental income as a basis for rating.

Research is likely to be commissioned on the issues raised by organised agriculture. In particular the possible impact of municipal property rates on the agri-sector

The presentation is to be discussed in full at a later date. The major point of contention was whether property rates was a wealth tax or not.

MINUTES
Chapter 9: Miscellaneous Matters
Clause 70: National monitoring reporting
An opening point raised by Mr Mizilikazi Manyike(Director: Municipal Finance Policy) was that the issue dealing with valuers should be left alone and dealt with in a separate piece of legislation.

The Chair asked for clarification on the issue of independent Office of the Valuer General promoting a common standard of valuation and rating with similar functions to that of the national minister, should be set up.

Ms Manche replied that the concern was that this would create new problems such as creating an entity that may spell new expenditure and demarcation of powers. The current draft of the bill assigns these (monitoring) powers to the Minister and she cautioned against the creation of (costly) administrative structures. One would have to explore in more detail the role, powers and functions of such an office bearer. She admitted that it may be (administratively) difficult for the Minister to fulfil all required monitoring functions.

Clause 71: Regulations
Mr Manyike pointed out that the subsections capture most of what had been said in the legislation.

The Chair was not comfortable with the idea that the Minister may make policy in terms of Clause 71(1)(g)

To this Ms Manche replied that it was appropriate for the Minister to make regulations about the policy and not about its content.

A suggestion was made regarding Clause 71(1)(j) that the issue of tribunals must not be in the hands of the Minister but that of the MEC.

The Department cited the need for uniformity as the reason behind this clause.

It was agreed that Clause 71(3) must read "types" of property and not "categories " of property.

Clause 72: Offences
Mr Manyike pointed out that the clause points out some of the offences that may be said to constitute offences in terms of the Bill. He pointed out that 72(1) is important, amongst other things, in dealing with absentee landlords who may make it difficult for land valuers to carry out their duties.

Chief Nonkonyana (ANC) wanted clarification of Clause 72(1)(b) as to whether the "person" mentioned in the clause referred to one appointed by the board or by the valuer authorised to do the job.

No response was given to the question.

He also queried the possible danger that 72(1)(e)(ii) may contradict a person's right to remain silent. The Chair added that it might also contradict a person's right to have a legal representative present in terms of the Bill.

To this, Mr Manyike responded that it must be read together with Clause 67(1)(b).

The Chair said that he understood it to mean that the person called would have been present already at the meeting, which is different from when such person has been summoned. He said that 72(e)(ii) should be used except where a person insists on a lawyer.

It was concluded that the section kicks in after the person has elected the right to legal representation. It was also agreed that 67(1)(b) presides over 72(1)(e)(ii).

Mr G Grobler (DA) wanted to know what the degree of negligence referred to in Clause 72 (2) was.

Mr P Smith (IFP) wanted to know what the consequence of the clause was.

Mr Manyike replied that the degree of neglence would be gross, as would be defined by the courts. He said it referred to valuers being negligent in doing their job and not to something covered in contract.

Clause 73: Application of Act when in conflict with other laws
This clause was accepted as is.

Clause 74: Transitional arrangements: Valuation and rating under previous legislation
Mr Manyike pointed out that 74(1) is meant to protect valuations in place at the time this legislation takes effect.

Further, 74(2) is meant to assist with the problem of varying definition in provincial ordinances.

The discussion on 74(2) centred around the structures mentioned in the clause - whether it meant that municipalities had the exclusive right to levy rates to the exclusion of the rural local council, and whether the terms used were the full range of all the terms used in provincial ordinances and none were omitted.

To this, Ms Manche responded that municipalities were the only entities that were recognised to carry out this function. There are no other structures - other than municipalities - that were recognised.

Further, that the use of the term "other units" was in response to the fact that there were other units that were not provincial government entities as covered in 74(3) and that in this particular case only local government entities were at issue.

A suggestion was made that "other units" be removed from the inverted commas. The Chair flagged the issue to be discussed at a later stage.

Clause 75: Transitional arrangements: Use of existing valuation rolls
Mr Manyike pointed out that the reason for the clause is the protection of existing rolls. However, the main issue is the potential different treatment of similar properties in one (new) municipal jurisdiction, simply because they still are on different valuation rolls: 75(2) "If a municipality uses valuation rolls in terms of subsection (1) that were prepared by different predecessor municipalities, the municipality may impose different rates based on the different rolls, so that the tax on similarly situated properties is similar."

Ms Manche confirmed that this was going to raise problems during the transition period and will pose challenges because there are different valuations of similar property owing to the fact that these valuations were not done at the same time.

The Chair pointed out that the clause should be dealt with at a later stage. He also warned against the use of the word "tax" when referring to property rates. He also stressed the point that the application of different rates was an interim measure until a common valuation is done.

Mr Smith pointed out that the differences should be in rates and that exemptions must be uniform.

Ms Manche emphasised that everything is to remain as it is until a new valuation roll has been done in terms of this Act, including exemptions.

Clause 76: Transitional arrangement: Liabilities of bodies corporate of sectional title schemes
The Clause was accepted as is.

The Chair noted as an aside that there was a private member's legislative proposal from Mr Edwin Conroy of the NCOP to amend the Sectional Titles Act [see Proposed Legislative Amendment to Sectional Titles Act] and he must be alerted that his issue is being attended to.

Clause 77: Amendment of section 115 of Act 32 of 2000
Mr Solo raised a concern about the permissibility of amending a statute in another statute. He suggested that a Municipal Systems Amendment Bill be introduced instead.

The Chair pointed out that an amendment bill was on its way and that this may be included there.

Clause 78: Amendment and repeal of Legislation
Mr Smith asked why the ordinances were being amended in part and were not all falling away with this Bill.

The Chair explained that this had been done before.

Clause 79: Short title and commencement
Accepted as is.

Conceptual / policy issues of the Property Rates Bill
Mr Nico Machlalan of Organisation Development Africa presented the first batch of conceptual / policy issues that the Committee needs to address (see document). In short, these are:
- the purpose of property rates
- the (normative) objectives of the Bill
- the issue of what to value, that is, land vs land and improvements
- the issue of how to rate, that is, flat rating, site value rating or composite rating.

The presentation looked at the UK system of property taxes as far as it addresses the concept of banding and rental income as a basis for rating.

Some points that arose during the presentation:
- As a preliminary point, Mr Machlalan pointed out that he was not arguing a specific case or taking any position.
- He quoted extensively from Dr Roy Bahl who has done research on property rates.
- The reference to the British system in the presentation did not mean that it should be followed but that the committee should deliberate on its relevance.
- Given the fact that South African property rates are high, they are an important source of revenue.
- He stressed the importance of South African history in relation to the issue of property rates. He pointed out that the culture was that property rates have previously existed in white urban areas and that there may be some confusion as to what they are. Further, that they were linked to level of infrastructure and service.
- Research is likely to be commissioned on the issues raised by organised agriculture. In particular the possible impact of municipal property rates on the agri-sector

Discussion
The Chairperson asked for the Department's conceptual understanding of what exactly the Bill was about.

Ms Manche responded that the aim of the Department was to balance principles and values. That municipalities have this power and it must be regulated. Secondly, municipalities have their own powers in terms of the Constitution and that property rates were their own source of revenue and that they need autonomy in decision making. On the other hand, there was a need for a uniform and simple rating system, one that is equitable and afforded fair treatment for all. The role of MEC will also be important because of the need for oversight.

The Chairperson asked if this was not a wealth tax.

Mr Smith concluded that this was a wealth tax as what is important is the means of raising the revenue and not what it was used for.

It was agreed that the term 'tax' must be used in its neutral form, 'rates'. The Chair pointed out that the term wealth tax was ideologically loaded and that it must be avoided. He also asked the Department to look at the difference between wealth tax and property rates and get back to the Committee.

On the issue of legitimacy that will be brought about by the new legislation on property rates, Mr Komphela (ANC) wanted to know whose responsibility it was to legitimise the process. What had the department done so far to educate the people on this issue?

Mr Smith added that legitimacy is people buying into the system and that in this regard, proportionality does not exist which might be problematic.

Mr Machlalan's response:
- On the issue of whether it is a wealth tax, he responded that proponents of that view would be those who regard it as a capital gains tax. Also that it would be tax paid with after-tax money.
- The other view is that it is not a wealth tax because the tax is based on the value of property as an approximation in order to levy a rate for things that are for the public good.

On the question of the education of the public, the Chair pointed out that this had been discussed but that as a Committee they also had a responsibility to do something.

Mr Machlalan continued with the second half of his presentation (see document).

The Chair noted that not all committee members had prepared for the ODA presentation and discussion would be needed to clarify the issues. The Chair referred to the General Comments on Hearings document prepared by Mr Dunkley which he suggested was based on claims that could not be verified because it offered no evidence. The document would be subject to discussion at the next meeting, together with ODA's presentation.

Mr Nonkonyana requested that they be given more time to come up with a collective input as this would be difficult especially for traditional leaders.

The meeting was adjourned.