Municipal Property Rates Bill: briefing

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PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE

LOCAL GOVERNMENT AND ADMINISTRATION SELECT COMMITTEE
18 February 2004
MUNICIPAL PROPERTY RATES BILL: BRIEFING

Chairperson:
Mr Mkhalipi (ANC)

Relevant Documents
Municipal Property Rates Bill [B19B-2003] as passed by the National Assembly
Presentation by Department

Department of Provincial and Local Government delegation: Ms Jackie Manche - Deputy Director General Institutional Reform and Support, Mr Mzilikazi Manyike - Director Municipal Finance Policy; Mr Peter Vaz - Department resident advisor.

SUMMARY
The Municipal Property Rates Bill was tabled before the Committee. The Committee heard that in actual sense some property owners might see a reduction in the amount they pay as the rates base is broadened and property valuations updated. Rates on newly rateable property would be phased in over a period of three years. This period could be subject to an extension by the MEC for Local Government. The rate levied on property must be a rate based on the market value of the property or the fixed amount within a specified valuation band. A municipality might levy different rates for different categories or rateable property but that each municipality would determine these categories.

The Committee further heard that the Bill mandates a uniform rates base on the improved value of the property. This is unlike the current scenario where municipalities use different rate bases. The Bill also guarantees that everyone receives the same treatment with regard to property. The Bill does not change the total revenue received from property owners nor does it set the cent amount in the Rand. Any increase or decrease in what property owners pay will result not from the Bill but from the actual cent amount in the Rand that would be set by municipalities

MINUTES
The Chair noted that the Municipal Property Rates Bill has been around for quite a while but urged members to treat the Bill before them as a fresh piece of legislation. Such an attitude would enable them to thoroughly interrogate the Bill. He asked the Department to brief the Committee on the Bill.

Briefing by Department
Ms Jackie Manche, Deputy Director General, outlined the background to the Bill from the time Cabinet had given its approval to the point when the Bill was introduced in the National Assembly on 2 March 2003 up until the Portfolio Committee had voted on the Bill on 17 February 2004. She noted that the Bill would not empower municipalities to levy property rates since this was an original power granted to them by Section 229(1)(a) of the Constitution. She noted, however, that Section 229(2)(b) of the Constitution provides for national regulation of municipal power to levy rates. She outlined four key objectives the White Paper identified as the rationale for the Bill:
- To extend rates base to previously un-rated areas
- The issue of whether there should be a uniform national system or local choice in rates base, rating and valuation methods
- Frequency of valuation periods
- Relief to those who are genuinely too poor to pay for rates

Ms Manche stated that the Bill mandates a uniform rates base on the improved value of the property. This is unlike the current scenario where municipalities use different rate bases. The Bill guarantees that everyone receives the same treatment with regard to his or her property. She clarified that the Bill does not change the total revenue from property owners nor does it set the cent amount in the Rand. Any increase or decrease in what property owners pay will result not from the Bill but from the actual cent amount in the Rand that would be set by municipalities.

Ms Manche noted that some property owners might in actuality see a reduction in the amount they pay as the rates base is broadened and property valuations updated. She noted that rates on newly rateable property would be phased in over three years. This period is subject to an extension by the MEC for Local Government. She explained that a rate levied on property must be a rate based on the market value of the property or the fixed amount within a specified valuation band. A municipality might levy different rates for different categories or rateable property but that each municipality would determine these categories.

Turning to the contentious issue of exclusions, Ms Manche explained that Section 229(2)(b) of the Constitution provides a constitutional basis for exclusions since the term "regulate" includes the power to describe circumstances under which a municipality would not be entitled to impose property rates. She noted that the impact of exclusions would vary from one municipality to another. One must, therefore, be very careful when specifying exclusions. She stated that Section 229(2)(a) of the Constitution cannot be used to exclude property rates. Only when a municipality has exercised its power to rate would the question arise as to whether or not it has violated the said section of the Constitution.

Ms Manche said that, on the other hand and purely on the ground of policy, the Bill seeks to exclude certain categories of properties. These properties are namely:
- The first R15 000 in value of each residential property
- Land reform beneficiaries' property for the first 10 years after receipt of title provided the said title does not change hands
- The first 30% of the market value of public service infrastructure as defined in the Bill
- Property registered in the name of a religious community and used primarily as a place of worship and official residences of office-bearers
- Parts of special nature reserves, national parks, nature reserves or botanical gardens except for commercial activities within them.

Ms Manche further reported that municipalities would be obligated to ensure that individual unit owners in clusters are registered with them because they will no longer be able to rate the body corporate. She concluded that municipalities have a maximum of four years from the effective date of legislation to comprehensively revalue properties. In the meanwhile municipalities are entitled to make use of the existing valuation rolls until the conclusion of the general valuation exercise.

Discussion
The Chair commented on the amount of commitment the Department had put into processing the Bill to its current level. He then invited members to interact with the Department's report.

Ms Botha (DA) noted that the Bill obligates property owners to continue payment even where they have registered their objections with the Appeals Board. She wanted to know if such an appellant would be able to recover excess rates where their appeal succeeds.

Ms Manche replied that, where an appeal is lodged and succeeds, the relevant municipality would be obligated to refund the excess rates. On the other hand, where the Appeals Board makes a finding of under assessment of rates then the property owner would be called upon to top up the difference.

Ms Botha noted that some spiritual leaders are known to reside in palatial homes where a huge sum of church money is used to refurbish the property. She questioned the justification of excluding such luxurious properties.

Ms Manche explained that an official residence of a religious leader is only exempt from rates when it is registered in the name of the church and not in the name of such a leader. She added that should the church decide to dispose of the property then it would be required to pay rates for the past year.

Mr Mathee (NNP) noted with consternation that so much is expected of municipalities within such a short span of time. He wondered whether municipalities have enough valuers at their disposal to be able to complete the expected marathon valuation exercise within the stipulated time.

Ms Manche replied that during the entire process of preparing the Bill, municipalities had engaged the professional body of valuers and they have been working together to determine the projected timeframe.

Mr Nyakane (UDM) asked if the Department had, at any time before drafting the Bill, undertaken an impact assessment study to determine the viability of rating poor rural property owners. He noted that with the process of land restitution and the Communal Land Rights Act underway, it is expected that poor people would start owning properties. It was important not to unnecessarily burden them with property rates. He cautioned that such an eventuality would discourage people from owning properties.

Ms Manche pointed out that one of the prime exclusions in the Bill is that properties with a value falling below R15.000 would not be subject to rates. Another provision that cushions the rate burden for land reform beneficiaries is that this category of owners is given a 10 year grace period before the property rate kicks in. In addition to this relief there is the phasing-in period of three years which adds up to 13 years of preparation time for this category of property owners.

Mr Nyakane expressed concern that rating is based on the market value yet rural properties would not afford the amount charged on similar urban properties.

Ms Manche clarified that the market value in rural municipalities is far below that in the urban areas. The rate is based on the market value of the property in question and that it is unlikely that properties in rural municipalities would be based on the same costing as those in rich urban areas.

Ms Ng'ondo (ANC) wanted to know the basis for the R15, 000 cut-off mark especially in view of the fact that most RDP houses are of a much higher value than that figure.

Ms Manche acknowledged the difficult dilemma this question raises and pointed out that the Department and the South African Local Government Association (SALGA) had gone through tortuous deliberations over this matter. She explained that policy makers took into consideration that most rural property owners would be adversely affected if the R15 000 cushion were not provided. Policy makers also took into consideration the fact that many rural municipalities depend on low cost properties for their rate base and that it would be disastrous to remove all low cost property owners from the rate net. It was important, therefore, to strike a delicate balance between these two competing interests. She added that the Minister has been empowered, in consultation with SALGA, to periodically revisit the matter with a view to making necessary amends where the need arises.

The Chair thanked the Department for a lucid presentation and the capable manner in which they had clarified to members some very thorny issues. He looked forward to an animated interaction with the Bill

The meeting was adjourned.

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