Government tries to allay rates bill jitters

Posted On Monday, 26 May 2003 02:00 Published by eProp Commercial Property News
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Authorities say owners will be protected from unduly high payments.

Yunus CarrimFEAR that the new Property Rates Bill will affect home owners, as well as the agricultural and communal land sectors, may be exaggerated.

 In the past week concern about the bill, which will become law later this year, has been raised by the agricultural sector, the Coalition of Traditional Leaders of SA and estate agents.

 Organised agriculture predicts that the law will knock 40% off agricultural land values and ultimately threaten food security in SA. Four agricultural organisations told Parliament's provincial and local government committee last week that farmers would be rendered less competitive than those in SA's main trading partner countries, who enjoyed substantial state assistance rather than increased taxation. Rating farm land on improvements would lower the incentive to invest in improvements, they said.

 The Coalition of Traditional Leaders of SA says that if traditional areas are not excluded from property rates, traditional communities will have to pay tax on their rondavels and mealie fields.

 Aida national franchises CEO John Herbst, meanwhile, warns that local authorities will have to be very careful how they use the powers given to them when the bill becomes law, as levying higher rates on properties with a higher market value could skew the property market.

 "Such a policy would be disastrous from a real estate point of view because it will drive ratepayers out of high-value areas, lower the market value of properties in those areas and ultimately reduce the amount of revenue flowing to the local authority," he says.

 However, Roland Hunter, Johannesburg's executive director of finance, says properties with a higher market value are already taxed at a higher rate than cheaper properties. "Local authorities are always trying to generate as much revenue as possible, while putting as little financial pressure on ratepayers as they can. That's a general principle that applies now and will apply in the future."

 For the past two years the city has exempted people from paying rates if the site value of their property is less than R20000. Calculating taxes on site and improvements in terms of the bill does not mean the consumer will have to pay more, he says.

 "The rate in the rand will go down." If the property is worth R100000, with the site R25000 and the improvements R75000, the current arrangement holds that local authorities impose a tax on the R25000. The consumer would be charged tax of 10c in the rand.

 When the bill becomes law the property will be taxed as a whole, and the consumer will be charged 2,5c in the rand, yielding the same return.

 Yunus Carrim, chairman of Parliament's provincial and local government committee, says critics of the bill are being "overly alarmist".

 "The market value of land and buildings must be taken into account in valuing a property. We're also saying there must be no automatic exclusion of rural land from being valued and property rates being applied," Carrim says.

 In any event, there are provisions in the bill that act as checks and balances against the imposition of unduly high rates on ratepayers, he says.

 Provincial and Local Government Minister Sidney Mufamadi, in concurrence with Finance Minister Trevor Manuel, has powers to limit rates increases for all municipalities.

 "Several stakeholders have suggested that this be linked to the inflation rate," says Carrim. "Where property is rated for the first time, this must be phased in over a three-year period." Municipalities have up to four years from the time the bill is enacted to do new valuation rolls.

 His committee has asked the provincial and local government department to provide a study projecting the effect of moving from a land-only valuation to a land-and-improvements valuation.

 "If it leads to a dramatic increase in rates, this can be phased in over a threeyear period."

 His committee is also investigating the agricultural sector's complaints. "The intention of the bill is certainly not to impose property rates in a way that would debilitate agriculture. That would be foolhardy," he says. "But municipalities need revenue from property rates to increase service delivery and development, especially in rural areas. Farmers will also be beneficiaries of this development. Would it be reasonable to exclude them from paying rates?"

 Mizilikazi Mamyike, local government director of municipal finance policy, says local authorities will have the power to decide what tax rates they will apply. However, if local authorities tax property owners unreasonably, to the point that it affects national economic policies, national government will be able to intervene.

 He says there is a R15000 exclusion clause in the bill for residential properties, meaning that when land is valued for rating, R15000 is subtracted from the market value of the property. Rural huts are most unlikely to be valued at more than R15000, and so will not be taxed.

    May 21 2003 07:33:07:000AM Nick Wilson Business Day 1st Edition

Publisher: Business Day
Source: Business Day

Last modified on Thursday, 15 May 2014 16:45

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