Property Rates Bill: deliberations

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
20 November 2003
MUNICIPAL PROPERTY RATES BILL: DELIBERATIONS

Chairperson: Mr Y Carim (ANC)

Relevant Documents
Working draft of the Property Rates Bill (15 November version)
Summary of submissions

SUMMARY
The Committee discussed public submissions dealing with Clauses 12 to 15. The following issues were discussed at length:
- Commencement of rates
- Promulgation of resolutions levying rates
- Exemptions, reductions, rebates and grant-in-aid.
- Impermissible rates

MINUTES
Clause 12  Commencement of rates
There were no problems with 12(a)(i). The Chair asked what the significance was of 12(a)(ii).

Mr Gerrit Grove (Department Legal Drafter) replied that this related to Clause 26 because municipalities did not approve the budget and this was in response to the imposition.

The Chair wanted to know what the significance was prior to putting the clause in.

Mr Grove explained that previously they had provided for a different date as in the Municipal Finance Mangement Bill. The resolution was part of the approval.

The Chair asked under what circumstances 12(a)(ii) would be applied. What did they have in mind?

Mr Mzilikazi Manyike (Director: Municipal Finance Policy) said for MEC intervention.

The Chair said that on the issue 'rates taking effect from' the Committee had agreed to adopt the whole section. There were no amendments suggested from the ODA. He asked what was being said in 12(b).

Mr Peter Vaz (Department Law Advisor) replied that it referred to supplementary valuation. If there had been incorrect valuation then this would allow for the correct valuation to be put in and in particular instances retrospectively. Mr Grove added that this was linked to the provision on supplementary roles.

The Chair said that it should be cross-referenced.

Mr J Ngubeni (ANC) pointed out there was a problem if the mistake was the fault of a municipality. How did 'retrospectively' affect the person involved. How could they limit this as they could not penalise people if they were not party to a mistake. They had to be sensitive.

Mr Vaz agreed. The onus was on the municipality and not on the ratepayer. In certain instances decisions were taken on back payments otherwise the municipality had to pay the ratepayer back. If the municipality had made a mistake then the rate payer should not be penalised - for example, payment through instalments should be used. He suggested that a sub clause should be added.

The Chair asked for a wordier clause to be included.

Mr Grove said that Clause 12(b) would conflict with 64(4) because if a word was inserted it would be subject to 69(4). Clause 69(4) discussed the valuers' process in 48(a). They needed a reference from 69(4) to 48(a). In 2(b) it should be added that in the repayment to the ratepayer, municipalities must pay an interest rate. This was dependent on the committee but the issue should be flagged for later discussion.

Mr Ben Dorfling (South African Local Government Association) pointed out that property rates was a yearly rate. It was the choice of the municipality to levy once a year or have 12 levy payments. If not municipalities, work up to the time that rates are paid in terms of Clause 26. Under normal circumstances if municipalities use rate in the rand then how could they override and make a yearly rate.

In reply to Mr Grove asking if it was a legal or practical problem, Mr Dorfling said that it was both.
If municipalities did not do promulgate by 1 July they lost out for the whole year. They must stop municipalities from doing their work. If Clause 26 was put in what did that mean, for example, three months after the financial year. How would you rate then?

Mr Vaz said that retrospectivity only applied in cases of supplementary valuation.

Mr Dorfling said that if you have a yearly rate you could not say that three months had gone by and then rate based on the nine months.

Mr Manyike explained that the practical problem could be worked out arithmetically.

Ms S Kesaobaka Makotoko (SALGA) said that the way the whole/original amount would be taxed you might not be able to recover it. If it were only applied to supplementary valuation when would it come into effect?  What were the implications of the amount forgone?

The Chair said that there would be no money forgone unless there was supplementary valuation. He said that the word 'retrospectivity' was useless.

Mr Vaz pointed out that 23(1)(a) was not specifying any rate, it said 'either or'. He said that Mr Dorfling was looking at the practical issues.

Mr Dorfling stressed that one had to understand a monthly versus yearly levy. Property rates were the randage over a period of a year. It was part of the law to promulgate. If they were three months behind would the yearly rate stay the same rate?  The phrase 'may not be levied' until processed was a problem. Would they be able to recover?  What were municipalities going to tell the ratepayers?

Mr Vaz said that it was the rate valid for a year versus a yearly rate. He said that a legal opinion was needed because they were referring to a rate valid for a year.

Mr Dorfling explained that 2c times the value of the property was charged either once a year or monthly. The rate that was promulgated was the rate for a year and not for a month. Therefore they would divide the amount into twelve monthly payments or into a single amount. What would happen if three months had gone by because there would be a problem taking the yearly rate?

The Chair said that he did not understand what the issue was. The matter was flagged and would be sorted out at a later stage.

Clause 13  Promulgation of resolutions levying rates
The Chair asked why when promulgating the municipality had to publish in the provincial gazette.

Mr Grove said that there was a lot of confusion over the purpose of the clause. He understood the municipalities had to give notice to the local community to ensure community participation. How to make a resolution law was made clear through this. Subclause 2 explained that a resolution to levy rates had to be promulgated in order to become law because it was only effective once it was law. Subclause 3 gave an alternative to publishing in the provincial gazette.

The Chair said 13(1) was straightforward. He asked why the “a� had been changed to “the�.

Mr Grove explained that it did not mean any council thus the use of “the� was more appropriate.

The Chair questioned if this was not the type of work that the State Law Advisors did.

Mr Manyike said that he could not say whether it was an error committed by the Department or the State Law Advisors. It would be unfair to point fingers.

The Chair declared 13(1) accepted.

Mr Dorfling pointed out that Clause 5 said that municipalities had to review their rates policy annually. Clause 13 said that tariffs were part of the rates policy.  He asked for consistency. He pointed out that the rates policy had to be promulgated. It was a serious problem if advertising and other ways and means were being given. It was not legal if it was not promulgated and municipalities could not just advertise because they would not be legally covered.

To pass a resolution was to advertise the total rates policy including tariffs and then promulgation would occur if it is gazetted.

The Chair asked why the Department was giving an option. Why was it not possible to both gazette and advertise?

Mr Joe Dube (Senior Legal Administration Officer - DPLG) said that current practice was to publish and gazette.

Mr Grove said that the way that the clause had been drafted was because of how did people viewed the resolution if it was not published in the gazette. It is simply said in subclause 2 that publishing in a gazette led to promulgation. They had to provide other ways to promulgate which are outlined in subclause 3.

Mr W Doman (DA) brought up the issue of how many people read the gazette. Thus the word “and� should be added.

Mr Ngubeni asked if the process was slow in the case of promulgation. The Chair asked if municipalities could gazette overnight.

Mr Dube explained that it was gazetted provincially because some owners of property did not live in the town. It was better promulgated in the provincial gazette based on the issue of access. Those that lived in the town could read the advert at the municipal offices on a monthly basis.

The Chair asked that in order to allow for promulgation was there a deadline to gazette.

Mr Dube replied that when promulgation occurred they had to display on the same day.

The Chair pointed out that his question had not been answered. He asked again if promulgation took longer if it was gazetted. Was there a practical problem?  If they opted for the display route, would it be quicker? Was it a practical problem and how long did it take to promulgate?

Mr Dube replied that there was a gazette every Friday together with a special gazette.

The Chair said on that basis could be losing seven days. A significant majority promulgated and displayed not 'either or'. He asked for a strong reason for gazetting alone.

Mr Manyke raised a concern that some municipalities did not have the legal capacity to deal with the by-laws and the expenses.

The Chair asked what the cost was.

Mr Grove replied that it was enormously expensive. It was standard practice not to publish but rather to display.

Mr Dorfling pointed out that the law said that one had to promulgate through gazetting.

The Chair asked how many people did it through gazetting.

Mr Dorfling pointed out that if municipalities did not, they lost their tariffs.

Mr Grove said that tariffs had to appear in by-laws.

Mr Dorfling said that by-laws, tariffs and policy was something else. The rates policy including tariffs had to become by-laws otherwise municipalities would appear in court every day.

The Chair asked the Department to obtain more facts and then return to the Committee on the issue. They could make the obvious change to 13(3)(b) from 'newspapers' to 'advertise in the media'. There was also the website issue. He said that one of the submissions had motivated for 21 days. The Committee had agreed that they did not want to name a time period. He asked about Clause 13 contradicting Clause 76(5).

Mr Dorfling said that promulgation in ATB started in Clause 75(a)

Mr Grove said that Clause 75 had nothing to do with rates.

Mr Dorfling asked what section ATB was. It was the provision of services.

The Chair agreed that 13(2)(b)(i) as suggested by the professional valuers could be changed to 'to levy'.

Mr Vaz pointed out that levying was a legal thing. He agreed that it was more appropriate to say 'to levy'.

The Chair said that it was not important. On the issue of the resolution being taken at the start of the financial year, what was the problem?

Mr Grove replied that perhaps the Municipal Systems Amendment Bill would not be completed yet.

Clause 14  Exemptions, reductions and rebates
The Chair asked if it was reasonable to leave Clause 14(1) and 14(1)(a) reasonable as it was or not.

Mr Grove suggested that the clause be restored to its original provision.

The Chair asked why the Department was not keen on definitions. Was it not possible in (b) to make the categories clearer. He asked whether it was clear that a rebate was like a discount like a percentage discount. If words were used a distinction could be made. A reduction was for example a discount on valuation. He asked for explanations.

Mr Vaz noted that as it was stated at the previous meeting that some people used the term 'rebates' and 'reductions' interchangeably.

Mr Dorfling believed that there should be some clarity.

Mr Vaz explained that a reduction in the amount payable was not a rebate and then did not have to be put in the rates policy. Municipalities could get around these things.

The Chair asked if he was saying that a rebate provided for the amount forgone but for a reduction they did not have to include it.

Mr Vaz replied that according to the Bill they did not have to account for the amount payable they only had to account for the reduction of valuation.

The Chair stated that surely a definition was needed. If the sole reason not to define was to prevent the interchangeable use of the term, that was not enough. Couldn't they use terms because that would not be a definition?  Municipalities could find other ways to provide rebates and reductions therefore they had to mean the same thing. Could they not define it reasonably wide?  There was flexibility on the play on words. Was it a legal issue? He asked Mr Vaz how the Department wanted to use the word if it was not defined. By defining how did that restrict the possibilities?

Mr Vaz explained that the issue was the variety of forms that rebates and reductions could take. In addition it was also expressed in different ways. Municipalities could call things reductions so that they could be taken out of the budget and not reflected. He said the wide usage covered all the different uses of the words and municipalities could not run away.

The Chair asked for more clarity because everything that had been said pointed to having a definition.

Rev A Goosen (ANC) motivated that a definition was needed to facilitate municipalities and residents. There had to be no confusion with what was being applied.

Mr Manyike said that the problem could be addressed in Clause 3(3) because all things being discussed were relief measures.

Mr Grove referred to Clause 3. The policy should cover all issues under relief measures. Technical definitions were bound to limit the terms rebates and reductions. He said that it was news to him that it was linked to value and not amount. Municipalities could come up with other relief measures to fall outside the policy. Based on this point some things could fall outside the net. It was better not to have definitions and broaden it instead. All things should be covered under the rates policy. Municipalities would claim that they only dealt with rebates and reductions under the policy.

The Chair said that things should be kept loose. It was agreed for now not to give a definition but Mr Vaz and Mr Manyike were mandated to do research on this.

Mr Dorfling said the issue was more serious because there were more relief measures.

The Chair said that they did have grant-in-aid.

Mr Dorfling explained that in the old ordinance, Ordinance 11 of 77, grant-in-aid was the only way to grant certain exemptions. Every municipality did its own thing because there was no guide. No vote of grant-in-aid should be brought in here because it had nothing to do with property rates. It was upsetting rebates, reductions and exemptions and now grant-in-aid.

Mr Manyike said that Clause 3(3) was not clear. It talked about "exemptions, rebates and reductions"
 which was dangerous because sophisticated municipal lawyers would make claims that it referred to relief. It must be clear that relief measures had to be limited to these three, which could be defined here.

Mr Dorfling said that relief measures were in the rates policy where the tariffs were and not in grant-in-aid. That was why it was defined in the bill. The sentence had to be changed.

Mr Ngubeni said that if the Committee defined them but this did not affect the ultimate result of what they wanted to achieve, then they should not define them.

The Chair asked what the solution was because SALGA was repeatedly claiming that things were done differently to what the Department was claiming. Why should the Committee believe SALGA? The Department and SALGA were constantly at odds and it was hard for the Committee to make decisions without the facts. The gap between the Department and SALGA was worrying. Compromises would have to be found. They would not define and they would not add the words 'relief measures'. His own view was that there should be definitions but the issue would be left for now and discussed at a later state. The Department wanted to continue grant-in-aid but the terms of the Bill ruled out grant-in-aid.

Mr Manyike said that grant-in-aid amounted to a relief measure. He raised the issue of 3(3) because they needed to make it clear. Examples of relief measures were there.

Rev Goosen asked how grant-in-aid applied in terms of rates

The Chair replied that it was not a case of how grant-in-aid operated. For example, if an organisation were paying rates of R10 then they would be given a grant of R5 and this could be paid towards rates and the organisation would have to find the other R5 to pay the municipality. There was a circular movement of cash. Where did this concept come from, how did it work and how was it different to a rebate? Why were they giving money that they would get back? Grant-in-aid was nonsense because the organisation was paying back the money given by the municipality. He asked who in the Committee thought it was nonsensical. He asked SALGA to explain why.

Ms Kesaobaka Makotoko said that they were not using grant-in-aid, that was the old system.

The Chair said that in his municipality they were still using grant-in-aid. He wanted to understand the rationale.

Mr Dorfling explained that grant-in-aid was a phrase. It was money used for any purpose at that stage. Municipalities could use it for whatever they wanted. It had been used under the auspices of welfare. It was not used for the payment of rates. In the old ordinances there were not enough relief measures and basically they were giving money to pay where there was a tariff.

The Chair clarified that if they gave R5 it could be used for whatever that organisation wanted. He said that the Department was saying that grant-in-aid was given to help people pay their rates.

Mr Manyike asked why the provincial ordinances discussed grant-in-aid in relation to rates. The Chair asked SALGA to explain why grant-in-aid was in the provincial ordinances.

Mr Dorfling explained that the old ordinances were very descriptive when describing rebates and exemptions. The reason for grant-in-aid in the provincial ordinances was because of the inflexibility. The old ordinances when written only had one rate applicable. There were not any relief measures so they had to look for opportunities, ways and means to give grants.

The Chair said that there was no reason to accommodate grant-in-aid. What other relief measures were there beyond rebates, reductions and exemptions?

Mr Doman explained that grant-in-aid in the old regime was a public relations exercise for the Mayor. He noted that they had spent a lot of time on rebates, reductions and exemptions and the Committee would have to do something to close the loopholes.

The Chair said that the issue would have to be pursued when the Deputy Director-General, Ms Jackie Manche, was present because the Department was not providing compelling arguments. Beyond rebates, reductions and exemptions what else was there?

Mr Ngubeni said that they could not ignore grant-in-aid because municipalities would keep doing it as it was standard practice. The Committee had to think of ways to close the loopholes.

Mr Grove said that the Department's argument was more practical. In 3(2)(b) if they defined the term in narrow technical ways municipalities, would come up with many terms for relief  to get around it. However, if they added another clause saying that there were no other relief measures except these three they would solve the problem.

The Chair asked about 14(2) and the concern raised by Venn Diagnostics about public service infrastructure.

Mr Vaz explained that the concern was linked to public service infrastructure and portioning out, which belonged to Clause 15

The Chair said that in 14(1) the concern of the Western Cape Department of Local Government had been dealt with because it was not the total sum of categories. Clause 8(3) gave municipalities the power to add to the list of categories of rateable property.  The suggestion from the Legal Resource Centre motivated that municipalities should be required to give explanations.

Mr Vaz referred to 3(2)(c) "identify and quantify all exemptions, rebates and reductions in terms of costs to a municipality and benefit to the local community; " but the Chair said that this did not explain the reason.

The Chair summarised the decisions on 14(1):
- The 'a' was removed from 14(1) as suggested to correct the grammatical error.
- They did not agree to the deletion of 14(1)(a) and (b).
- Clause 14(1) [c] had already been dealt with.

Regarding Clause 14(3), Mr Vaz explained that municipalities were going to be projecting therefore they had to make it clear that the figures were purely projections.

The Chair commented that was it really necessary.

Part 3: Limitations on levying rates
Clause 15  Constitutionally impermissible rates
The Chair said that 15(1)(a), (b) and (c) were fine. He asked for a comment and a summary of all the concerns raised.

Mr Manyike said that when the Bill went to Cabinet, a big issue raised had been the international conventions that South Africa had signed and had to comply with. For example South Africa would not rate foreign embassies and Foreign Affairs wanted to prohibit municipalities from rating embassies as per the convention.

The Chair asked if the Committee should burden Cape Town with the property rates of the US for example.

Mr Ngubeni asked what the situation was with embassies in the US. There had to be consistency in other countries. There was no problem if Foreign Affairs and Treasury paid for them. This figure amounted to R8 million.

Mr Manyike said that based on the international convention, foreign embassies did not pay the South African government. South African embassies elsewhere were treated the same as far as he knew.

The Chair said that if the status quo was that embassies did not pay and Foreign Affairs paid on their behalf, the Committee needed to decide if this should continue. Mr Vaz was mandated to set up a meeting to explain why they were not changing the status quo.

They dismissed the concern raised by the Professional Valuers in 15(1) regarding agriculture. The concern raised by Professor Franzsen had already been covered in redrafting 15(2) so that it was a stand-alone subclause. The concern raised by the South African Council of Churches had also been dealt with elsewhere.

The Committee agreed to come back to subclause 3. They agreed on subclauses 4 and 5.

Mr Vaz pointed out that the submission by Venn Diagnostics wanted to exempt public service infrastructure which had been moved from 15(2) to 15A(a).

The Committee agreed to come back to public service infrastructure in 15A(a).

The error with the wording of Prince Edward Island was noted in 15A(d).

The Committee agreed to (e), (f) and (g).

The Committee had not found agreement on (h) previously and this policy issue was discussed.

Mr Vaz said that the policy was based on R15 000 in order to account for RDP houses. RDP houses were less than R23 500 but they did not want to raise R15 000 to R23 500 as it would apply across the board.

The Chair said that instead of giving R15 000 across the board this could be restricted only to the poor. Then it would be the first R23 500 of the market value. The Minister could alter the figures. He thought it was a good idea to give this only to the poor thus making the problem smaller. He acknowledged that there were some municipalities that had many housing areas below the R15 000 mark and with not many affluent people. National Treasury had to seriously consider the amount being given to these municipalities. If they were making national exclusions, the national fiscus had to make up the money municipalities were losing. There were practical problems and it was hard to arrive at a decision.

Mr Ngubeni said that it would be a difficulty for small municipalities to identify the poor. The Committee should look into the question of amending the Act and leaving municipalities to decide for themselves.

Mr A Lyle (ANC) asked if they were applying it to certain categories of citizens or to value. It was extremely tricky.

The Chair said that it was both.

Mr Lyle said that one could be a millionaire and have R5000 house.

The Chair pointed out that the question raised was a philosophical one because there were very few people like that. He suggested that they use Ngubeni's criteria.

Mr Solo said that Mr Ngubeni's approach should be noted because it was a fair approach. Small municipalities especially rural ones had more RDP houses springing up. There was a new dimension in the Eastern Cape where the market value was increasing substantially but he did not know how this would impact on the R15 000.

Mr Goosen agreed with Mr Solo because whatever the value of RDP houses, that should be the minimal amount that should be paid.

The Chair asked SALGA to comment.

Ms Kesaobaka Makotoko said that it was generally in line with their view. She asked what the intention was of the proposed clause. Who was it favouring? She understood the focus on the poor and in a sense it was forcing municipalities to assess their profit base.

Mr Dorfling said that the problem would be the blanket reduction or deduction. The problem of flats and hostels was not specified. He suggested that the words 'units of' be included to keep this kind of reduction specific and fair.

Mr Manyike said that it was included because the clause catered for residential properties. Part of the motivations had been to limit it not to RDP houses but rather to all the people at that level. He said that the Department would have to meet with SALGA about their concerns and they would report back to the Committee.

The Chair repeated that Mr Ngubeni's suggestion was a good one because it was moving away from the notion of everyone being exempted. It appeared that the Committee was saying that not everyone who had a house below R15 000 was poor.

Mr Ngubeni brought in the issue of houses not being worth as much because they were in a rural area.

The Chair said that they were moving in that direction. SALGA could help. They needed to know more about the impact on small municipalities particularly rural ones - so they were not going to exempt now.

[The PMG monitor left at 5pm and the meeting continued until approximately 6.30pm]