May 31, 2004

By Roy Cokayne

Johannesburg - Claims from various quarters that the Municipal Property Rates Act, which was promulgated last week, would result in property becoming unaffordable have been quashed by George Nel, the president of the SA Institute of Valuers.

"There are sufficient mechanisms built into the act and the constitution that will prevent rates being levied in a prejudicial manner. Sanity must prevail," he said last week.

However, Nel said his analysis of the effects of the new act revealed that rates payable would increase if the site value was less than 20 percent of the improved value of the property.

Rating was historically done differently in each province and each of the former four provinces had their own legislation and system of valuation and rating.

In the Transvaal, rates were levied based on site value excluding improvements but the new act made it compulsory for municipalities countrywide to levy rates based on the improved value of the property.

Nel emphasised that municipalities might not levy different rates on different categories of residential property and the rates on non-residential property might not exceed a prescribed ratio to those on residential property.

The annual rates increase might also be limited by the minister of provincial and local government in concurrence with the finance minister.

Municipalities derived their power to levy property rates from the constitution but this power was not unfettered and municipalities were not allowed to exercise it with their sole discretion.

Nel said the constitution restrained municipalities from exercising their fiscal powers in a way that would materially and unreasonably prejudice national economic policies, economic activities across municipal boundaries, or the national mobility of goods, services, capital or labour.

In addition, it allowed national legislation to regulate municipalities' exercise of this power.

Nel said the new act regulated and limited the fiscal powers of municipalities in such a way as to achieve the overall objective of the white paper on local government.

This aim was to reform property taxation to support sustainable local government by providing a stable and buoyant revenue source within the discretionary control of municipal councils.

He said the act had been promulgated on May 11 but strangely the effective date of implementation had not been specified as yet.

He said a number of issues still had to be resolved, including the impact of the act on the financial years of municipalities and issues related to tribal land.