Legislative History

The Constitution (s. 229) gives municipal governments the right to levy rates on property, subject to regulation by national legislation. However, the necessary regulatory legislation has not yet been enacted. Consequently, the local authorities rating ordinances of the four former provinces continue to apply. Each of the former provinces had its own system of valuation and rating. However, all four considered land used by religious institutions - including residences for ministers of religion registered in the name of the institution concerned - to be exempt from rates. Such land did not need to be zoned for religious purposes in order for the exemption to apply; the sole test was "exclusive use".

The Property Rates Bill is intended to give effect to the separation of powers envisioned in the Constitution. It repeals the old provincial ordinances and devolves powers to assess rates onto the local sphere of government. It was published on 21 November 2002 for public information, in anticipation of its being tabled in Parliament in 2003.

Provisions of the Bill

The Property Rates Bill will empower each municipality to formulate its own rates policy, which must be consistent with national legislation. In general, a rates policy must:

• Treat persons liable for rates equitably;
• Consider, and take steps to minimise, the burden of rates on the poor; and
• Take into account the effect of rates on welfare and charitable organizations.

Certain types of property are considered to be non-rateable.

These include:

• Public service infrastructure (e.g., transportation and utilities infrastructure);
• Public conservation/protected areas;
• Coastal public property, state-owned islands and territorial waters; and
• The first R15 000 of the improved value of residential property.

Property transferred in terms of a state land reform programme is also non-rateable for the first ten years that the beneficiary or his or her heirs own that property.

If a municipality levies rates, it must do so on all rateable property within its jurisdiction with the exception of municipally-owned property and "property for which tenure is legally insecure as a result of past racially discriminatory laws or practices and for which it is therefore impossible or unreasonably difficult to establish a value". However, a rates policy may assess different rates on different categories of property, provide rebates to certain properties or types of properties, and/or exempt certain properties or types of property from rates - provided it establishes clear criteria for any ratings variations. The Bill identifies a (non-exhaustive) list of possible categories of rateable property, such as residential, industrial, commercial, and farm property.

The Minister for Provincial and Local Government may limit rates on specific properties or categories of property in order to protect national economic and commercial activity. The government may also cap annual rates increases and limit the extent to which non-residential rates may exceed residential rates.

Before a municipality enacts or amends a rates policy, it must engage in a process of community consultation. This includes publicising the fact that a rates policy is under consideration and making the draft policy available for public comment. Any comments received must be taken into account before the policy is finalized, after which it must adopt

by-laws to give force to the policy. A municipality must also review its rates policy annually and must follow a similar consultation process if it wants to amend the policy.

Each municipality must then draw up, maintain, and review annually a public register of properties located within its bounds. This must indicate the details and improved value of each property as well as any ratings concessions that apply. A municipality must appoint a registered valuer to prepare such a roll. A valuer is empowered to carry out a physical inspection of property to determine the improved value of the property (i.e., the amount which it would realize if sold on the open market on the valuation date), but is not required to do so.

Property is to be valued in accordance with "generally recognised valuation practices, methods and standards". If there is insufficient market data available for any category of rateable property, then that property may be valued in accordance with "any mass valuation system ... appropriate in the circumstances, including ... (one) based on predetermined bands of property value and the designation of properties to one of those bands on the basis of minimal market related data". (A valid pre-existing municipal valuation roll may continue to be used until a new valuation roll is drawn up or until 1 July 2006, whichever is earlier.)

Once a valuation roll has been drawn up, it must be open to public inspection for at least 30 days, during which time objections to the valuation of specific properties may be lodged. An objector who is not satisfied with the decision of the municipal valuer regarding his or her objection has a right of appeal to a valuation appeal board, appointed by the MEC for local government. A valuation roll takes effect at the start of the financial year following the completion of the public inspection period and remains valid for up to five financial years.

Rates must be assessed on the improved value of a property or, if this is less than a prescribed valuation limit, at a flat rate. Where rates are imposed on properties for the first time, they must be phased in over three years, so that 25% of the assessed rate in payable in the first year, 50% in the second, and so on. The phasing-in period may be extended by the relevant MEC for local government, provided it does not exceed six years.

Areas of concern

The Bill eliminates the general property rates exemption for religious institutions and independent schools as the national government is not constitutionally empowered to impose such an exemption. Although the Bill requires a municipality to consider the impact of its rates policy on "welfare and charitable organizations", it does not identify the property of such organizations as a distinct category of property. The term "welfare and charitable organizations" is not defined, and it is not consistent with the exemption provisions of

other tax legislation (which now exempts "public benefit organizations"). There is also a danger that the sample list of categories of property on which differential rates might be assessed will be interpreted by some municipalities as exhaustive, even if it is not intended to be. The exemption for public infrastructure is also very narrowly drawn in that it does not include health and education facilities or other essential services (unless these are municipally owned).

Although the Bill provides for existing valuation rolls to be used until new ones can be drawn up, it is not clear whether existing exemptions will also be maintained in such instances. Moreover, the Bill appears to require that, if an owner does not have an exemption or a grant-in-aid prior to the effective date of the legislation, that owner will be liable for rates until such time as the municipality grants an exemption or grant-in-aid.

The Bill provides little guidance with respect to an appropriate system of valuation for categories of properties on which there is likely to be little market-related data - such as churches - which are not frequently bought and sold. Furthermore, if a church has been declared a national monument, its marketable value will be even more difficult to assess accurately. Neither of the two valuation strategies envisioned in the Bill (the use of comparable market data or a mass valuation system) is likely to be appropriate.

For further information

The full text of the Bill may be obtained from the Government Printer or from the Department of Provincial and Local Government web site. For additional information, please contact the SACC Parliamentary Office.