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PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
14 August 2003
PROPERTY RATES BILL: RELIGIOUS ORGANISATIONS, CHARITABLE ORGANISATIONS AND INDEPENDENT SCHOOLS
Chairperson: Mr Y I Carrim (ANC)
Documents handed out:
South African Council of Churches Submission
Independent Schools Association of South Africa Submission
Local Government Property Rates Bill (B19 of 2003)
The Committee looked at the outstanding issues from exemptions and exclusions. In terms of 'independent schools' the Committee agreed that there were no exclusions but possibly exemptions in terms of making a category in Clause 8. It was agreed that the term 'independent schools' was not a blanket category and research was needed about such educational institutions as they were not homogenous.
There was much debate about religious organisations - and their properties that included place of worship, church leader's residence, halls, additional land. The Committee looked at Clauses 3(3), 8(3) and 15(1) with a view of how to deal with them.
Mr Carrim outlined the arguments from Independent Schools. He pointed out that schools were exempt as a group but that the school fees that independent schools were charging ranged from R2 800 to R 48 000 a year. It was stated that 53% of schools charged below R6 000 a year.
Mr Carrim said that the submission argued that schools were part of public service infrastructure (PSI) and thus should be treated as a special category. Point 4.3 of the submission explained the great impact of property rates on schools because school facilities occupied extensive land, which would be a huge additional burden on them.
The submission brought up the issues of being rated differently in different municipalities, their huge outreach programs, the fact that schools were exempted all over the world, that schools should be seen as public benefit organisations (PBOs) as per the Income Tax Act and that the land occupied by schools was less than 4% for which they do pay direct services.
Mr Carrim outlined four main issues to consider:
- the fact that PSI was excluded,
- schools were part of national economic policies,
- the vital and vast outreach work with the disadvantaged,
- current practice with government schools and if the Department of Education was satisified with rate payments.
Ms Jackie Manche (DPLG) noted that the Department of Education paid the rates for government schools.
Mr Carrim felt that on some level the Committee should relieve schools of any added pressure because they provided a crucial service. He pointed out that in all the ordinances they were excluded.
Mr P Smith recalled the first discussion about PBOss where it was decided that the term was too broad to be effective. However he said schools that are PBOss should be excluded or the approach must be to charge a very small rate. He pointed out that there was the option of making schools a special category because there was no market for the property except to sell to another school.
Mr S Mshudulu (ANC) asked for more information from SALGA (South African Local Government Association). He said that there were problems with the Department of Education and that there were inconsistencies between local government and public works. He asked what happened to farm schools. He pointed out that the Department of Education should have been invited to the meeting. The maintenance of schools depended on municipalities and he asked if they ever discussed rates.
Mr G Grobler (DA) commented that education and public schools was taxpayer's money. Parents who send their children to private schools also paid tax so in a sense were subsidising public schools and private schools because they were paying twice.
Mr Ben Dorfling reminded the Committee about the principle of what came from national government for local government. Public schools and private schools should pay taxes and it is the Department of Education who must subsidise them for the cost. Public schools paid taxes so it did not make sense that private schools would be exempt. He said they should not mix issues.
Mr P Smith (IFP) noted that if it were an issue of principle then it would mean the same thing for places of worship.
Rev A D Goosen (ANC) pointed out that the Department of Education was paying less and less for the maintenance of public schools. The same applied for private schools with more responsibility on the school funds. He argued that schools had no retail value and the purpose of the building did not change. The vast majority of schools were non-profit making but he questioned fees of R42 000 and asked if this was non-profit. He questioned whether schools were conforming to what they claimed and what the situation was for each school individually.
Mr Mshudulu said that private and public schools both tended to be a public good. He suggested that the Committee facilitate a meeting with the Department of Education, local government and SALGA because there was no way to address the issue except as a policy issue. He pointed out that not all education was a public good with schools in some cases being used as a political tool. There were many perceptions about schools but the Committee must not lose focus on the Bill. SALGA could not only have answers because he was not sure if they were victims or players in the debate. He warned against relying on international practice on issues such as free education because the same provision can be meant for the 'haves' and the 'have nots' are excluded. He suggested phases in the approach with the opportunity to engage with the issue from a political side.
Mr B Solo (ANC) agreed with Mr Dorfling because the department had a budget for rates and all public schools paid rates. He stated that everyone should pay for the sustainability of services. He questioned the need for private schools because for him it was a matter of choice to set up private schools. He asked what kind of education system was wanted - one system or multi systems in the moral regeneration and nation building of the country. The move to uniformity would assist local government with resources. He suggested that there should be no exemptions and if there was to be a subsidy it should come from the Department of Education. On a political level he wondered what the impact would be on nation building in having many different schools so as to follow one's own religious agenda.
Mr Carrim agreed that in some cases religious schools added to elitism.
Mr Solo pointed out that private schools received good municipal services and questioned why they did not want to pay for it.
Mr Grobler agreed with Mr Mshudulu and said that whether education is public or private it rendered a service, which was paid for. It was a place of learning that the nation benefits from.
Mr Smith questioned the tendency to discuss schools homogenously which overshadowed the range of issues that different schools faced.
Mr Carrim agreed that schools were genuine PBOs and asked if they should be put in a special category.
Mr Nico Machalan (ODA) gave clarity on PBOs and summarised that the department had commented on the issue and they submitted that the list of PBOs in the Income Tax Act was exhaustive.
Mr Smith agreed that PBOs were too broad but highlighted that the broadness was not the issue.
Mr Machalan drew the Committee's attention to Clause 8 of the Bill where there could be a special category for education institutions in general which all make submissions to the local authority for exemptions. He suggested extending the special categories with specific properties named for exemption. He noted that not necessarily all the property was used for education at educational institutions.
Mr Carrim explained Mr Machalan's point by saying that if the Committee wanted to create a category it should be expanded from education institutions. He said that from the discussion he had a list of points that the Committee could agree on:
- These were no exclusions,
- That independent schools were not a blanket category,
- The drive from independent schools was coming from elite schools.
He commented that besides the suspicious figures it was a good submission.
Ms Manche agreed that the submission was skewed in a particular direction. She pointed out that the submission said that 56% of independent schools were African, which was a percentage that ignored the black elite. Secondly they claimed that the majority of independent schools were non-profit but then no figure was submitted. She said that it was clear that the submission was suspicious because things were being hidden. It is a fact that some schools were listed on the Johannesburg Stock Exchange (JSE) and were making a lot of money from trading. The lack of information had made the department sceptical. The Committee should leave municipalities to make the distinction at their discretion because exclusions were not practical.
Mr Carrim asked for comments on the issue of exclusions.
Mr Grobler asked for more clarity on the issue of the JSE. Was the profit going back into the school? He motivated that an explanation should be sought about this.
Mr Carrim said that it would be noted for now to get facts and figures but that the Committee would make decisions as far as they could. He asked the Department to submit their figures on this issue. He agreed that there was a huge spectrum of schools ranging from elite schools to Christian religious schools. Thus far the Committee had agreed that there would be no exclusion, that independent schools were not a monolithic group and they recognised that schools did address the needs of the poor. They did not really need facts and figures although the submission did not give full statistical information. The church funded some independent schools. He suggested that a subcommittee be created to deal with the issues. He wondered whether the Committee was not giving too many concessions to too many sectors. He asked if there was a way to ensure that schools that could pay, paid, and those who could not pay, did not pay - apart from presenting their case to municipalities and motivating for it. The practical option would be listing independent schools as a category named 'schools or education institutions' as the term 'independent schools' was not politically palatable to Members of Parliament. Yet the term 'schools' opened the door for public schools and 'education institutions' opened the door too wide. He asked for a way forward.
Mr Mshudulu said that the Committee must define 'education institutions'. He agreed that the term private or independent would be very unpopular politically. He suggested mulling over the term 'institutions of learning' then categorising within that as was done with PSI.
Mr Carrim said that PSI was an exclusion. He asked if the Committee give independent schools a category and then define within that.
Mr Mshudulu pointed out that farm schools run by religious organisations - basically churches in education would overlap.
Ms R Southgate (ACDP) agreed with the term 'education institutions'. She was concerned with SALGA's approach that all independent schools should pay rates because they did not have an accurate register of all private schools. She asked SALGA how they were going to address that because they could not catch everyone because everyone was not registered.
Mr Carrim asked the Committee members to state what they preferred. If a category were to be made in Clause 8, how should it be worded: independent schools, schools or education institutions?
Mr Solo felt that it should be 'education institutions' because there were many types of institutions of education. He pointed out that a source of income for municipalities was traditional schools and this term captured all institutions of education.
Mr Dorfling said that the issue of categorisation was similar to Mr Smith's question about places of worship. He felt that education institutions must pay rates and religious organisations should be exempt.
Mr Carrim asked if there would be an effect if it were put in as a category?
Mr Dorfling said that there would be.
Mr Smith felt that a category was the second best option. He pointed out that this approach did not deal with uniformity in the system. He wanted exceptions that were linked to PBOs so that wealthy schools paid rates. He said that if they did categorise they would have to improve the category in Clause 8(3) and make it a category with a package for schools, welfare organisations, religious organisations and the like.
Mr Carrim reported that Ms Manche had suggested the enhancement of the national framework as an option. He stated that it was agreed to put education institutions into a category as in Clause 8(3) as per Mr Smith's suggestion. He pointed out that issue they were dealing with was more prescribed and that it was possible to have a national framework that was prescribed. The relevant departments and ISSA were to be contacted and Mr Mshudulu was to report back.
Mr Mshudulu said that what was missing was very clear from the responses - the absence of a national framework. If there were a national framework, municipalities would not have a problem taking decisions. It was obvious that they needed guidance because many institutions without national guidelines were being exempted at local government level. He supported considering a national framework.
Mr Grobler asked if the property tax for public schools was paid by Public Works.
Mr Carrim said yes although some Public Works did not pay which was a big issue.
Mr Dorfling agreed because PSI was owned by the state. It was important to start looking at state assets because the government owed R127 million.
Places of worship
Mr Carrim outlined the submission from the South African Council of Churches (see document). In keeping with the requirements of Section 229 of the Constitution, Clause 15 states that a municipality may not levy rates on property that would prejudice national economic policies". SACC's contention is that there is clear national economic policy with respect to the beneficial tax treatment of public benefit organisations such as churches. They suggest strengthening it by articulating this in more detail in Clause 3(3).
Mr Dorfling said that a by-law could not go against a law. He agreed to exemptions now but that if the property were sold, the church would have to pay the rates in arrears.
Mr Carrim stated that places of worship were exempted but that in some cases it may extend beyond that.
Rev Goosen asked what would happen if churches had to make contributions to municipal finances.
Mr Machalan explained that municipalities would undertake valuations and before municipalities adopt the rating policy, there is a 30-day period for objections.
Mr Doman charged that by-laws should be subjected to national legislation and said that if the Minister warns a municipality but the municipality goes ahead, the MEC should be able to intervene.
Mr Smith asked if the requirements were (a) to (e) and a municipality only did (a) to (c) then would that rates policy not be in compliance with the Act?
Mr Machalan explained that a local authority must advertise for 21 days and if this was not complied with, it was grounds for objections, giving the go-ahead to approach the MEC.
In answer to Mr Carrim asking if the minister's residence was included in the places of worship exclusion, the Committee agreed that it was.
Rev Goosen asked if it also included the church halls, which were used for meetings of the community.
Mr Carrim said that an exemption for property must be done legally therefore the agenda was for legal tightness.
Mr Grobler suggested caution because people used their houses as places of worship.
Mr Mshudulu asked what they were trying to add.
Mr Smith explained that it was a logical conclusion that municipalities would be able to investigate to ascertain the places of worship.
Mr Machalan said that the house was valued as individual property and he said that they must be careful that the church did not rent out the house and the hall.
Mr Carrim said that it could be dealt with in the wording to ensure that it means only for the priest living there.
Mr Grobler said that the residence must be registered in the name of the church and not the priest living there.
Ms Southgate pointed out that some churches do make money.
Mr Carrim explained that exclusions meant that it was out. The summary rejection of rates was meant for places of worship and the accommodation. He pointed out that Rev Goosen had talked about legal clarity because some priests liven in accommodation not connected to the church. This would open the floodgates, therefore municipalities could deal with the housing.
Rev Goosen pointed out that churches sold land.
Mr Carrim said that for the rates policy, churches must go and negotiate with municipalities about this. He asked if anything could be done in the Bill.
Mr Dorfling explained that the ordinances covered this. Ordinance 11 of 77 was brought in to deal with the corrupt use of land in this situation. In the case of a sale, the church must pay the rates in arrears in order to protect municipalities.
Mr Smith agreed with Mr Dorfling to an extent but said that established churches should not be expected to pay arrears of rates for the disposal of assets.
Rev Goosen motivated that churches were built for life and that the area had to be demarcated in order for the church to use it.
Mr Dorfling said that the value of the priest's house could increase with improvements. He said that they could settle for a time frame of within 10 years so that if a there were a sale then they had to pay the municipality.
Mr Carrim said that just because a church wanted to move, they should not be punished for it.
Mr Dorfling said that it would come off the proceeds.
Mr Carrim stated that the profit from sale would be used to build another church. They were talking about bona fide churches and legitimate churches should not pay arrears in the event of a sale.
Mr Smith said that there was a distinction between mainstream denominations and smaller churches. The issue was more complex because places of worship did not always look conventional and a blanket exemption would allow for corruption. They should give municipalities the opportunity to investigate.
Mr Machalan said that places of worship had definitely been excluded. There were other mechanisms to deal with corruption. The best way to exclude places of worship was in Clause 8 as a narrowly defined category or in Clause 3 based on their service.
Mr Carrim explained that it was a policy decision to exclude places of worship and the accommodation so it needed to be defined in such a way that there would be no room for corruption. Legitimate properties must be addressed and not exclusions or the rates policy of municipalities.
Mr Smith asked about monasteries and nunneries.
Mr Dorfling explained that they were given exemptions on a yearly basis where all political parties have the opportunity to engage.
Mr Carrim said that in order to deal with the challenge to property rates it would be useful to put in something such as 'appropriate measures to alleviate the rates burden' in Clause 3(2). If it were put in with exclusions, it would be quite strong.
Mr Smith asked why they were looking at alternative measures because it was already excluded. Mr Smith highlighted that some churches have property that was used for commercial purposes so it should be worded properly.
Mr Carrim stated that when excluding it must be fine-tuned so that it applies to legitimate places of worship. SALGA must assist with this. An option was that in Clause 3(2) a rates policy must (e) 'take into account the effect on religious organisations'.
Mr Dorfling suggested putting it in both Clauses 3 and 8.
Mr Machalan noted the Committee's decision to exclude places of worship and the accommodation. He questioned why they had to create a category and force municipalities to take that into account. He pointed out that in their decisions about environment they had not included the impact of the environment in Clause 3. He felt that they were doing too much.
Mr Carrim said that he had to allow for discussion but agreed that what Mr Machalan had said did ring true.
Ms Manche said that she understood that a policy decision had been taken to exclude places of worship. Before categorisation was done in Clause 8, what could be done is to use Clause 3 and then make a framework. Charity organisations were in Clause 3 and that was a bit of a discord with churches in Clause 15. She motivated that they should be treated alike because they perform the same roles - thus they should be dealt with together.
Mr Carrim noted that this view was not a disjuncture because it was decided that independent schools were different. The discussion had noted that firstly religious organisations were not as heterogeneous as independent schools but it was decided to define places of worship narrowly and circumscribe fly-by-night churches. Secondly the historical role of churches as the moral fabric of society was noted together with the acknowledgement that what they did was similar to independent schools. Lastly it was noted that there was no disjuncture between churches. It had been the majority view to treat organisations similarly but the two options are to withdraw churches and places of worship from exclusions or to put everything into all categories which would be dangerous.
Rev Goosen said that the decisions made about churches and schools should remain that way.
In reply to Mr Carrim asking for her comment, Ms Manche said that there was a long list of PBOs.
Mr Carrim said that it had been decided that PBO would not be used.
Ms Manche said that with PBOs one needs to look at non-governmental organisations and hospices etc. You could not just look at religious organisations because you had to look at other organisations too. She argued that there was a case for them to be recognised by municipalities and to look at the role that they played within the community. She said that this approach meant that they could have their own policy not in Clause 15 but in Clause 3(3). She said that municipalities should take into account the proposal by SACC.
Mr Carrim said that it was not a formidable argument that they must all be treated the same because of government's policy towards PBOs. They had taken the decision that they were not convinced by Section 229 and Clause 15(1) as the sole basis for exclusions.
Ms Manche said that in terms of section 229 it could be used to benefit PBO by stretching the income tax policy of the country and looking at the body in different ways. This would exclude on the basis of National Economic Policy.
Mr Carrim pointed out that the committee was not undermining the work of the department.
Rev Goosen said that the three sectors were not the same and that they must be treated differently.
Mr Carrim said that nothing new was being said.
Mr Doman suggested that another point should be created under Clause 15.
Mr Carrim explained that constitutionally it could not be done. He said that the department was meeting with the lawyers on the policy framework question. He said that the department needed more time to respond. Schools had been sorted out and on the issue of churches being linked to charitable organisations, the Committee agreed that it did not have to be done based on the legal argument of income tax exclusion. He said that a decision did not have to be taken now. He said that although exclusions had been agreed, the door would be left open - but for now members were supporting exclusions for churches.
Mr Dorfling said that he would check with the municipalities and SALGA.
Ms Manche explained that in the department meeting with lawyers they had said that the Bill could use Section 229. By using the same argument, they could not use Clause 15 but they could put it in Clause 3(3) and use PBOs. Therefore put them in 3(3) and leave it up to the discretion of municipalities.
Mr Carrim said that at the next meeting the policy perspective on how decisions were made would be dealt with together with the basis for valuation.
On this issue of the R15 000 housing exemption, a few municipalities had argued that that was too high. They claimed that for small municipalities the R15 000 exemption gave them no rates base. Some housing bodies had motivated using the housing subsidy of R23 000
Ms Manche wanted to do this from the angle of the poor getting houses. She said that this had been a deliberate decision and that the issue should be looked at again in 20 years.
Mr Dorfling said that R15 000 exemption was applicable if the loss of revenue was covered.
Mr Smith said that if the property value shot up they had to pay. It would create responsibility for people to pay their rates.
Mr Carrim said that he was more sympathetic to R23 000 but that increasingly the other concessions made him think that it was the same circle of beneficiaries. That made him less convinced to raise it to R23 000. He asked for the ANC perspective.
Mr Mshudulu said that it should be based on the principle of the housing provision. There was the point made by SALGA of revenue forgone and thus they needed to cost the Bill to see how much revenue had been lost or gained.
Mr Grobler commented that the housing subsidy was the minimum.
Mr Doman pointed out that in the urban areas it would be a nightmare to collect rates and that some people have houses but no money. The Bill must look at the occupant and not just the site.
Mr Carrim added that there was the big issue of administration cost.
Mr Machalan noted that the proposed exclusion of the first R15 000 on the value of all residential property benefited both the poor and the rich. The legislation of exclusion was setting the floor net for the property market. Property below the floor net would not be able to trade.
Mr Carrim closed the meeting.