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PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
6 June 2003
PROPERTY RATES BILL: CONCEPTUAL ISSUES
Chairperson: Mr Y Carrim (ANC)
Documents handed out:
Local Government: Property Rates Bill (B19 - 2003)
Key Concepts and DPLG Response to Questions Posed by Portfolio Committee
This was a formal meeting in which the Committee continued the debates around conceptual issues arising from the Property Rates Bill. The topical issue was on the system of rating to be used between Land-and-Improvements and Land-Only valuation.
With the exception of Ms Southgate of the ACDP, members present were from the ANC. For the purposes of the meeting, the Chair made a ruling that Mr Dunkley (International Union for Land Value Taxation) can participate because of his knowledge on the matter and also to be able to offer an opposing viewpoint to that of the Department.
The Chair pointed out that the issue to be discussed was Land Improvements and/or Land-Only valuation and that this was to be a final discussion on the issue. He pointed out that the Land-Only rating had a strong case, but not strong enough to be the only base for valuation. He asked ODA to give its input.
Ms Ebrahim from ODA argued that the Land-and-Improvements rating establishes a broader tax base. It also recognises wealth in assets hence it treats people differently. It is also easier to administer because of the availability of data such as from the Deeds Office and estate agents. The test for transparency and uniformity also easily applies to this.
Mr Dunkley argued that Site value rating was easier to administer. He stated that 70% of land was valued at site value rating until 1984.
Mr Goosen (ANC) pointed out that Land-and-Improvements lobbyists have argued that it is more difficult and costly to conduct valuation at regular intervals. This view was inconsistent with what Ms Ebrahim is suggesting and he asked that a correct view be given.
The Chair said that the Land-and-Improvements lobby seem to suggest that it is easy to determine property rates and he wanted to know if this was in fact the case. However from the arguments put forward, the case for Land-and-Improvements seemed the stronger argument.
Mr Solo pointed out that the cost of land is dependent on demand. It is difficult to valuate land on its own because once there are buildings on it, it becomes more expensive.
The Chair said that it would appear that in order to get a Land-Only valuation, one would have to value the entire property and then estimate the value of Land-Only. He put the question to the department as to which was cheaper.
Ms Manche pointed out that the bottom line was to value the entire property.
Mr Dunkley said that there was no need to value all properties in site valuation. You can value a single property where all the rates are the same. Valuation can thus be done with less than 1/3 of valuers when using site value.
Mr Solo pointed out that a detailed mathematical calculation of these issues was necessary.
Mr Dunkley argued that it was easier, faster and cheaper to do a Land-Only valuation
The Chair closed the debate on Land-and-Improvements and Land-Only Valuation.
Wealth in assets
The Chair noted that with this, wealth and the probability that one can pay, is not only viewed in terms of income but in the assets one has.
Ms Ebrahim pointed out that the yardstick is what a person is worth and how much they can pay. If we use only income as a yardstick, we can ignore a range of things that can feed their ability to pay.
Mr Sithole wanted to know how you deal with people that are asset-rich and income-poor such as a pensioner who may have inherited property. He also gave an example of Everton where the property is owned by the community and cannot be sold because of issues of land rights. He pointed out that it was important to weigh all options and set criteria. He said one cannot have a "one size fits all" situation.
The Chair asked if Land-and-Improvements would not prejudice those who are only getting houses now. Also to be taken into account was the number of people per household especially in the townships.
Mr Solo said the "public goods" factor must be taken into account. The rich tend to utilise "public goods" more than the poor. For example, in the case of a fire, due to the size of their property, they may need more than one fire engine.
Mr Ngubane said that one must also take into consideration the fact that in one household, one may find three families earning three different incomes. He pointed out there is no need to come up with special criteria for valuation because special cases were already being catered for in the clause dealing with exemptions, rebates etc.
Mr Sithole stressed that this would not work. In his constituency, house-to-house evaluation was done.
The Chair summarised the issues as follows and asked the department to respond to them:
- Income poor and asset rich cases
- Would the Land-and-Improvements rating not discourage land de-segregation? Newly acquired property by blacks will be penalised. It may also prejudice the rich.
- How about the cases of large spaces with buildings.
- Extended families may also mean extended income.
- The wealthy utilise public goods more than the poor
- How do you check against people hiding their assets?
In response Ms Manche conceded that the scenarios painted did exist but cautioned against a piece of legislation that was going to take into account all eventualities.
The Chair was not impressed by this and saw it as a way of avoiding questions. He insisted that the department deal with each point raised.
On racial de-segregation, Ms Manche pointed out that this would not be the result as rates are based around what people can afford. She warned against looking at one issue in isolation. The determining factor was the value of the property. This is what would determine if people can afford the rates or not.
The Chair accused the department of avoiding issues by giving general answers. He insisted that they were failing to take into account what is actually happening in reality e.g. on issues such as extended families.
Ms Manche stressed that there was a need for a uniform system. The determining factor for each jurisdiction was going to be the value of the property. The higher the value, the higher the rates.
The Chair turned to ODA for answers.
Ms Ebrahim pointed out that the department would find it difficult to answer these questions, because the impact of the valuation will only be seen once the process had began. It is not possible at this stage to say what the impact would be.
The Chair stated that since the department could not do the work, he would do it himself. He was not convinced by anything they were telling him. He asked the rest of the Committee if their question had been answered satisfactorily.
Mr Sithole said that more information was needed, as there were real issues out there that had not been taken into account. He insisted that a study be done and evidence be provided. He suggested that the department find out how many systems were being used nationally.
The Chair said it had already been decided earlier that this would be done. He suggested an informal meeting between the Department and the majority party to set criteria that will be used. A study group was also to suggest an answer.
Mr Dunkley insisted that Land-Only valuation was going to benefit the poor more than Land-and-Improvements because it is cheaper. It would get the previously disadvantaged to buy into the market.
The Chair warned Mr Dunkley against generalising.
Mr Dunkley said that the value of the Rand is low. Where you include improvements in the valuation this will discourage people from making improvements.
The Chair wanted clarity on the residents being referred to. He pointed out that one needs to advance the interests of all, particularly those who voted for the politicians.
Mr Solo said those who have not been in the rate system would feel the ultimate impact. He wanted to know what impact Land-Only will have on those in high densiity areas and those in wealthy suburbs who may benefit from it.
Mr Ngubeni said Land-Only complicates matters. It only benefits those close to town.
Mr Dunkley said the municipalities must be left to determine the system that will be best through experience.
The Chair said this would defeat the goal of uniformity.
Ms Ebrahim said that market value increases more slowly in poor areas than in rich areas, hence in the long run, the poor would end up paying less. On the objects of the Bill, she said this would ensure uniformity, legitimacy, a common broad tax base, equity between citizens and categories of property.
Ms Manche pointed out that the evidence before the committee was inconclusive one way or other. There is a need to broaden the tax base for municipalities and one way of doing that was through the Land-and-Improvements system. Those who can afford by nature of investing more will show in the improvements they make and this can be captured in the Land-and-Improvement rating.
The Chair said that it would appear that if they had to prioritise, Land-and-Improvement would come first. He suggested that a way be found to use both systems. Did uniformity mean that they only had to use on e system. He said at this stage, without evidence to the contrary, they may consider going with the Land-and-Improvement rate and using the Land-Only in certain circumstances.
Mr Dunkley said this was not a good system as it was not a true reflection of land value. Further in some areas there was not property for rent.
The Chair commented that rental ratings were difficult to use. It did not make sense if the property was not being rented out anyway.
Ms Ebrahim said this was done in England based on real income bands and not perceived income bands. It was done at national level by a formula decided by Treasury.
The Chair asked that the argument be put on paper.
The Chair asked where this was used and why.
Ms Manche explained that it is a determination of the "best and highest use" of that property. Studies show that in the agricultural sector, this is close to the market value.
Ms Ebrahim added that in all other areas except for agriculture, use value and market value were not the same.
Mr Dunkley said use value may be the answer to the problem of agricultural land. He suggested that a self-valuation system be employed. This is where the owner values his own property and gives a value at which he would be prepared to sell his property.
Ms Manche said self-assessment was used in respect of business. She said this was open to abuse and fraught with problems. Relying on people to be honest was dangerous. This may reduce costs but may erode the tax base.
The Chair agreed that this was not an appropriate system.
The meeting was adjourned.
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