34
www.salga.org.za Towards Understanding Key Aspects of the South African Property Rates Act (Act No 6 of 2004, Amended) 03 October 2016
www.salga.org.za
Towards Understanding Key Aspects of the
South African Property Rates Act
(Act No 6 of 2004, Amended)
03 October 2016
www.salga.org.za
Presentation Outline
Process to Date
Process Forward
Objectives of the Act
Key Aspects of the Act: Power to Levy Rates
Tax Base
Impact on Property Owners
Rating Issues
Limitations on Levying of Rates
Community Participation
www.salga.org.za
Presentation Outline
Key Aspects of the Act (contd.):
Valuation Criteria
Valuation Rolls
Objections and Appeals Process
Municipal Valuers
Credit Control
Taxation of Rural Areas
Implementation Issues
Miscellaneous Issues
www.salga.org.za
Background
SA system of local government has created wall-to-wall
municipalities
Not a single piece of land is outside of municipal
boundaries
Properties in these areas are now part of the municipal
property tax net
Revenue generated from these properties can be
used to build infrastructure and undertake local
economic development and other activities in these
municipal areas
www.salga.org.za
Purpose Of The Act
The Act does not introduce a new tax but regulates existing municipal power to tax property
It replaces at least 138 pieces of legislation with a uniform national framework
It is part of a suite of legislation (Municipal Structures Act, Municipal Systems Act and Municipal Finance Management Act) aimed at transforming local government
This laid the basis for other fiscal reforms at the local level
www.salga.org.za
Problems With The
Previous Rating Regime
Each of the former four provinces had its own
legislation
Municipalities used different tax bases (land only, land
and buildings at same or different rates)
Municipalities used different valuation methodologies
(market value and depreciated replacement cost of
buildings)
www.salga.org.za
Problems With The
Previous Rating Regime
Inequities in the then rating system whereby the poor
paid proportionally more than the rich
Valuations of property in some municipalities had not
been undertaken for many years
www.salga.org.za
Power To Levy Rates
The Act does not empower municipalities to levy property rates - this power is granted by Section 229 (1) (a) of the Constitution
The Act divides the power to levy rates between Category B and C municipalities in terms of Section 229 (3) - Bs can rate in their area of jurisdiction and Cs can rate in the district management areas
www.salga.org.za
Uniform Tax Base
Stems from White Paper on Local Government which calls for simpler and uniform valuation system to replace the then cumbersome one
It made it easier to determine fiscal capacity of municipalities that could then influence their equitable share
It made it easier for the valuation profession to provide administrative support
www.salga.org.za
Uniform Tax Base
Choice of improved value as uniform tax base:
Broadens the tax base so that it would be possible to have a lower nominal tax rate if the municipality’s revenue needs do not change
Provides a more comprehensive measure of affluence than land or improvements alone and so is likely to be more progressive
Promotes transparency because total property value is a concept most property owners understand
www.salga.org.za
Uniform Tax Base
Choice of improved value as uniform tax base also:
Guarantees everyone receives the same treatment
with regard to their property
Two-thirds of municipalities have historically included
improvement value in their tax base so administrative
costs of compliance are not prohibitive
www.salga.org.za
Uniform Tax Base
It mandates a uniform tax base – the improved value
(land plus buildings) of the property
It mandates a uniform valuation methodology – the
market value of the property
It mandates that properties must be revalued at least
once every four years
It, however, leaves tax rate setting, exemptions and
rebate decisions to the discretion of each municipal
council
www.salga.org.za
What Else Does The Act Do?
It provides for a mandatory 3-year phase-in period for
newly rateable properties
It requires each municipal council to adopt and annually
review a rates policy in consultation with the local
community
– In accordance with chapter 4 of the Municipal
Systems Act
It prescribes a uniform objection and appeal process for
valuations
www.salga.org.za
What Else Does The Act Do?
The Act contains checks and balances to protect
property owners
– The Minister for Cooperative Governance, with the
concurrence of the Minister of Finance, can limit the
tax rate and/or its growth
– The Ministers can also regulate the ratio between
residential and non-residential tax rates
These mechanisms protect key economic sectors such
as agriculture and mining, and prevent municipalities
from taking undue advantage of properties that happen
to be located within their boundaries
www.salga.org.za
What Is Property Tax Revenue Used
For?
Revenue generated through property rates is used to
fund:
The provision of general local services that benefit
the community as whole as a opposed to individual
households
Governance, e.g. community meetings and council
meetings
Provision of basic services to households who
cannot afford to pay for them
www.salga.org.za
Impact On Property Owners
The Act does not change the total revenue needs of property owners nor does it set tax rates
Any increase or decrease in what property owners pay result not from the Act but from:
Regular property revaluations
Actual tax rates municipalities set
Some property owners actually saw a reduction in the amount they pay as the tax base is broadened and property valuations updated
Rates on newly rateable property was phased in over three years (may be extended by MEC for local government)
www.salga.org.za
Rating Issues
A rate levied on property must be
A rate based on the improved value of the property; or
A flat rate within a specified valuation band (that is below a prescribed valuation limit)
A municipality may levy different rates for different categories of rateable property
Each municipality needs to determine these categories
www.salga.org.za
Limitations On Levying Of Rates
According to Section 229 (2) (b) of the Constitution, the power of a municipality to levy rates on property cannot be exercised in such a way that it materially and unreasonably prejudices national economic policies, economic activities across boundaries, or the national mobility of goods, services, capital or labour
www.salga.org.za
Limitations On Levying Of Rates
The Act therefore excludes the following from taxation:
At least the first R15 000 in value of each residential property
All land reform beneficiaries for the first 10 years after receipt of title provided title does not change hands
Public service infrastructure as defined in the Act
Public conservation areas except commercial activities within them
www.salga.org.za
Limitations On Levying Of Rates
Other exclusions
Coastal public property
Territorial waters and Prince Edward Island
Mineral rights (rights to prospect for minerals)
Government buildings (at full market value), substations owned by public or private utilities, railway stations, airport and harbour buildings are liable for taxation
www.salga.org.za
Community Participation
The Act requires each municipal council to adopt and annually review a rates policy and adopt by-laws to give effect to its implementation and enforcement
Before adopting its rates policy, each municipality must follow a process of community participation in accordance with Chapter 4 of the Municipal Systems Act
www.salga.org.za
Community Participation
The rates policy of a municipality must:
Treat persons liable for rates equitably
Determine criteria to be applied by a municipality if it:
– differentiates between rates for different categories of
property;
– exempts or grants reductions or rebates; or
– increases rates
Quantify costs and benefits of exemptions, rebates and
reductions
www.salga.org.za
COMMUNITY PARTICIPATION
The rates policy must also:
Provide for appropriate measures to alleviate rates burden on poor individuals
Take into account effect of rates on welfare and charitable organisations
Allow a municipality to promote local, social and economic development; and
Identify all rateable properties that may not be subject to valuation
www.salga.org.za
Valuation Criteria
Valuation must be done in accordance with generally
recognised valuation practices, methods and standards
Physical inspection of the property is optional
Other techniques may be used such as aerial
photography, computer assisted mass appraisal
systems, and property banding
www.salga.org.za
VALUATION CRITERIA
Basis of Valuation:
The improved value of the property is the amount
the property would have realised if sold on the
date of valuation in the open market by a seller to
a buyer
www.salga.org.za
Valuation Rolls
A valuation roll must list all rateable property that the municipality intends to levy a rate on
The municipality must publish a notice in the Provincial Gazette stating that the valuation roll is open for public inspection for a specified period
The municipal manager must provide every owner liable for rates with a copy of the notice and an extract of the valuation roll pertaining to the owner’s property
The valuation roll is valid for four years (could be extended for one more year by the MEC for local government on request)
www.salga.org.za
Objections And Appeals Process
The Act prescribes a uniform objections and appeals process across the country
Objections must be lodged with the municipal manager in relation to a specific individual property and not against the valuation roll in general
Objections must be submitted to the municipal valuer for decision and disposition
The municipal valuer must furnish to the objector written notification of the decision and any adjustment made to the valuation roll
www.salga.org.za
Objections And Appeals Process
An objector has the right to appeal against any decision to a Valuation Appeal Board
VAPs must be established by the MEC for local
government in each province
At least one appeal board in each district and metropolitan municipality
Lodging of objections and appeals does not defer an objector’s liability for payment of rates
www.salga.org.za
Municipal Valuers
A municipality must appoint a municipal valuer
The municipal manager may designate (or the municipal valuer may appoint) assistant municipal valuers
Both valuers and assistant valuers must be registered in terms of the Property Valuers Professional Act, 2000
They must also comply with the Code of Conduct set out in Schedule 2 of the Municipal Systems Act
www.salga.org.za
Credit Control
The Act contains provisions on:
Method and time of payment of rates:
– in a single amount annually or in periodic
instalments
Obligation of a municipality to furnish written accounts
Obligation of a ratepayer to request account if
municipality does not furnish written account
Recovery of arrears from tenants, occupiers and/or
agents: – limited to the amount of rent due by tenant or
occupier or received by the agent on behalf of the
absent owner)
www.salga.org.za
Taxation Of Rural Areas
All rural areas in the country are now liable for property taxation by municipalities - this includes traditional areas which were formerly outside municipal boundaries
The definition of owner includes:
land tenure rights such as PTOs (permission to occupy) and deeds of grant
trustees in the case of property in a trust excluding state trust land (so Ingonyama Trust land, for example, is liable for property taxation)
Municipalities have the choice of taxing or exempting these areas
www.salga.org.za
Implementation Issues
Municipalities had to implement the following administrative changes:
Bringing previously untaxed areas into valuation roll
Updating existing information and collection systems
Updating and expanding valuation tools and processes
Developing monitoring capabilities
www.salga.org.za
Miscellaneous Issues
Monitoring of valuations by Minister for CoGTA
Regulations by Minister for CoGTA to enhance
effectiveness of the legislation around:
municipal rates policy
phasing in of rates and criteria used
property register
form and contents of any document referred to
in Act
procedure for appeals and reviews by appeal
boards, and so on
www.salga.org.za
Thank You
