Contents

A Biblical Perspective on Taxation
Taxes and the Church
New Tax Laws for a New Society
Income Tax Exemption for Public Benefit Organisations
Deductibility of Donations
Application Process
Related Taxes from which Public Benefit Organisations are exempt
Property Rates

A BIBLICAL PERSPECTIVE ON TAXATION

Since ancient times, governments have used taxes to raise money to finance the costs of public administration and the provision of public services-health care, education, police, agricultural services, and so forth. In addition, taxation has helped to finance poverty relief measures that promote the "social inclusion" of those at the economic margins of society.

Jesus himself endorsed the legitimacy of taxation by the state and acknowledged the duty to pay taxes when he said: "Give to the emperor the things that are the emperor's, and to God the things that are God's ..." (Mark 12:17; c.f. Matt. 22:21 and Luke 20:25) Nonetheless, people sometimes resent paying taxes and see them as something to avoid. But where fair taxes have been imposed by a democratic government, we ought not to complain. Indeed, Christians should see taxation as one mechanism by which a nation can give concrete expression to Biblical principles of social and economic justice and mutual care and concern, so that all might realise Christ's promise of "life in abundance" (John 10:10).

Taxation allows us to pool resources to buy things-like schools and roads-that we all need but that we would have a hard time buying individually. In most societies, income taxes also play an important redistributive function. In other words, people who earn more are expected to pay more. Their tax payments help to subsidise the costs of public services used by poorer people, many of whom are not required to pay income tax. (This is sometimes referred to as a progressive tax structure because the tax rate increases with income. Someone who earns R30 000 a year might be expected to pay 20 per cent of her income in taxes, while someone else earning R120 000 a year might be expected to pay 40 per cent.)

In South Africa, where the policies of former governments have created enormous inequalities, redistribution of wealth is essential to national reconciliation and social stability. Paying taxes is one way that we can demonstrate our love and concern for our neighbours.

At the same time, the Bible does not give state taxation an unqualified endorsement. The scriptures highlight the dangers of irresponsible use of state power, which can lead to military adventurism, social oppression and excessive taxation. In a democratic state, citizens also have a responsibility to watch what the government does with tax revenues and to speak up if they think public funds are being used inappropriately or unwisely.

TAXES AND THE CHURCH

Many governments excuse certain types of organisations from paying some or all of their taxes, usually because these groups perform public functions that would otherwise fall to the state. Historically, governments have typically offered tax concessions to three categories of organisations: religious, educational, and those involved with poverty relief.

Until recently, the South African government also followed this approach. The Income Tax Act, No. 58 of 1962, contained a provision⁽¹⁾ that exempted "religious, charitable and educational institutions of a public character" from paying income tax. Any fund dedicated to financing such institutions was also exempt. Similar language appeared in several other tax laws, including:

• the Transfer Duty Act, No. 40 of 1949, that imposes taxes on the transfer of property between parties;
• the Estate Duty Act, No. 45 of 1955, that assesses taxes on the estates of deceased persons;
• the Stamp Duties Act, No. 77 of 1968, that taxes certain legal transactions; and
• the Skills Development Levies Act, No. 9 of 1999, that requires employers to pay a 1 per cent tax on total wages to underwrite sectoral skills training programmes.

To claim the income tax exemption, a church needed to write to the Receiver of Revenue, providing evidence of its eligibility. The Receiver of Revenue would then supply a letter or certificate acknowledging the exemption. Religious institutions that secured income tax exemption in this way were automatically eligible for the other tax exemptions.

NEW TAX LAWS FOR A NEW SOCIETY

Shortly after the election of South Africa's first democratic government, it appointed a special commission to review the tax laws and to recommend changes. The commission, chaired by Michael Katz, published nine reports, the last of which dealt with matters affecting non-profit organisations.

The Katz Commission recommended that, in keeping with international practice, the government expand the range of tax concessions available to non-profit organisations. In particular, the commission proposed:

• The repeal of the existing exemption for "religious, charitable and educational institutions of a public character";
• The introduction of a generic exemption for all "public benefit organisations" and bodies dedicated to funding public benefit organisations;
• The relaxation of restrictions on tax-exempt organisations earning income from trading activities; and
• The extension of tax deductibility to a wider range of donations. (Formerly, only donations to tertiary educational institutions were tax deductible.)

At the same time, the Commission recognised that tax concessions are, in essence, a transfer of public monies to private organisations. The revenue loss to the state is justified in terms of the public benefits generated by a thriving non-profit sector. But this also means that the state has a responsibility to ensure that these funds are used in a manner that serves the public interest.

Many of the Katz Commission recommendations were incorporated into a Taxation Laws Amendment Act, passed by Parliament in June 2000. Further amendments were enacted in June 2002 and November 2003.

INCOME TAX EXEMPTION FOR PUBLIC BENEFIT ORGANISATIONS

What is a "Public Benefit Organisation"?

The revised income tax system creates a new category of "public benefit organisations" (PBOs) eligible to claim exemption from tax.⁽²⁾ To qualify as a PBO, an organisation must:

1. Be a trust, an association or a Section 21 company;
2. Pursue only approved public benefit activities on a non-profit basis and primarily within South Africa;
3. Be of a public character;
4. Submit to the Commissioner of Revenue a copy of the will, constitution or other written instrument under which the organisation has been established and which meets the requirements of section 30 of the Income Tax Act;
5. Register as an non-profit organisation (NPO) in terms of the Non-Profit Organisations Act, 1997 (unless the Commissioner of Revenue waives this requirement);
6. Comply with any reporting requirements set by the Commissioner of Revenue;
7. Refrain from paying "excessive" remuneration to any employee, office bearer or member; and
8. Stay within limitations on business activities.

1: Type of organisation

A PBO must be a voluntary association, a trust or a Section 21 company. Each of these different structures is governed by certain laws.

• Large PBOs are often set up as companies, incorporated in terms of section 21 of the Companies Act, No. 61 of 1973. A Section 21 company has articles of association and a board of directors, is registered with the Registrar of Companies and is an independent legal entity.



• In a trust, a group of people (board of trustees) administers certain property or funds for the benefit of other people. The arrangement is set out in a written document (the trust deed) and is regulated by the common law and the Trust Property Control Act, 1988. Trusts usually do not have an independent legal profile, so the trustees may be held personally responsible in any lawsuit brought against the trust.



• Many PBOs, including most churches, are voluntary associations, defined as a group of three or more people working together to achieve a common non-profit objective. Voluntary associations are usually administered by an executive committee appointed or elected in terms of a constitution. A voluntary association is governed by the common law and can be an independent legal entity if its constitution explicitly provides for this.

2: Public benefit activities

The law requires the Minister of Finance to develop a list of activities "of a philanthropic or benevolent nature". Such a list was incorporated into the Income Tax Act in June 2002 as Part I of the Ninth Schedule (see Appendix 8). It includes a wide range of activities under various headings:

• Welfare & Humanitarian
• Health Care
• Land and Housing
• Education and Development
• Religion, Belief or Philosophy
• Cultural
• Conservation, Environment & Animal Welfare
• Research and Consumer Rights
• Sport
• Providing of Funds, Assets or Other Resources
• General

The section entitled "Religion, Belief or Philosophy" includes:

• The promotion and/or practice of religion which encompasses acts of worship, witness, teaching and community service based on a belief in a deity.
• The promotion and/or practise of a belief.
• The promotion of, or engaging in, philosophical activities.

The Minister of Finance may add new items to the list of public benefit activities from time to time, as the need arises.

In general, a PBO must also carry out at least 85 per cent of its activities-measured either in terms of time or money expended-within South Africa. In special circumstances, the Minister of Finance may waive this requirement on request. Also, resources spent on providing benefits for people outside of South Africa are disregarded to the extent that the PBO concerned receives funding from abroad. In other words, if an organisation receives half of its income from foreign grants and donations, it can spend half of its resources on work outside of South Africa without jeopardising its tax exempt status.

3: Public character test

An organisation must be of a "public character" in order to qualify as a PBO. This means that it must meet at least one of the following tests:

• Each activity of the organisation must be for the benefit of or widely accessible to the general public or some sector thereof (other than small and exclusive groups); or
• Each activity of the organisation must be for the benefit of or readily accessible to the poor and needy; or
• At least 85 per cent of the organisation's funding must come from donations or from grants from the government, foreign states or international organisations.

4: Constitutional requirements

The law⁽³⁾ requires that a PBO's founding document (constitution, will or other written instrument) must contain provisions that:

• Require at least three unrelated people to accept fiduciary responsibility for the organisation's financial management;
• All office bearers accept fiduciary responsibility but the law requires only three unconnected officials to sign EI 1 and EI 2 (See Appendix 8-9)
• Prohibit any one person from controlling, directly or indirectly, decision-making powers for the organisation;
• Prohibit distribution of the organisation's funds to any person, except in the course of undertaking a public benefit activity;
• Require the organisation to use its funds solely for the purposes for which it was established or else to invest such funds in a financial institution [as defined in section 1 of the Financial Institutions (Investment of Funds) Act, 1984], listed securities [as defined by section 1 of the Stock Exchanges Control Act, 1985], or any other financial instrument approved by the Commissioner;
• Require, in the event of the organisation's dissolution, that its assets be transferred to a similar, approved PBO or a state department in the national, provincial or municipal sphere;
• Prohibit the organisation from using its resources, directly or indirectly, to support, advance or oppose any political party;
• Prohibit the organisation from carrying on any business or trading activity in violation of the trading restrictions (see item 7 below);
• Prohibit the acceptance of any donations that may be reclaimed by the donor (except where the recipient fails to abide by any conditions attached to the donation);
• Require the organisation to submit to the Commissioner any amendments to the founding document.

If a PBO's establishing document does not meet these requirements and cannot be amended to bring it into compliance, it will be deemed to comply anyway. If amendments are required and the PBO's establishing document can be amended, it will be deemed to be in compliance until no later than 14 July 2006, provided that the necessary amendments are made at the earliest opportunity and the organisation's financial officer provides the Commissioner with a written undertaking that the organisation will comply with these requirements in the interim. SARS has prepared a standard written undertaking for this purpose (Form EI 2)⁽⁴⁾.

5: NPO registration

In most cases, a PBO must also be registered as a Non-Profit Organisation (NPO) in terms of the Non-Profit Organisations Act, No. 71 of 1997, and comply with the reporting requirements in the NPO Act.⁽⁵⁾ Where the PBO is unable to register, as it does not comply with the requirement of the (NPO) Act for registration the Commissioner of Revenue, in consultation with the Director of Non-Profit Organisations, may waive this requirement if an organisation can show "good cause" why it should not have to register.

Some churches have argued that religious denominations (as distinct from religious service organisations and other faith-based organisations) should be presumed to have "good cause" not to register as NPOs. Their reasoning is that the NPO Act was designed to exercise public oversight over the activities of NPOs. While the State is able to determine what activities are consistent with the achievement of certain social objectives, it is not competent to decide what activities appropriately further spiritual ends. That is a matter best determined by religious authorities. The public interest is served by the State providing a climate conducive to religious activity and spiritual formation, not by the regulation of such activities. Thus, while it is appropriate for the State to insist on financial accountability, especially where public resources are involved (as is the case with tax concessions), it is not appropriate for faith communities to be called to account for their religious activities.

However, there may be other reasons why a religious denomination may wish to register as an NPO. For example, government policy requires that an organisation be registered as an NPO to be eligible to be allocated public funds.

In any case, NPO registration is fairly simple. (See the section on Non-Profit Organisations, below, for more details.) In practice, SARS is giving organisations applying for PBO status up to one year to register as NPOs if they have not already done so.

If an organisation believes it should be eligible for tax exemption but feels that it has good cause not to register as an NPO, it should attach to its application for PBO status a letter explaining its reasons and requesting the Commissioner to waive this requirement. If this request is denied, the organisation has a right to expect SARS to provide written reasons for its decision.

6: Reporting requirements

Recognised PBOs are required to comply with reporting requirements determined by the Commissioner. SARS has recently developed an annual tax return form, EI12, especially for PBOs. This must be completed and returned to SARS within six months after the end of the organisation's financial year.

7: Prohibition on "excessive" compensation

An organisation may not be tax-exempt if it pays any person "excessive" compensation, including its own employee, office bearer, or member⁽⁶⁾. The Income Tax Act does not define "excessive" except to say that it must be assessed "having regard to what is generally considered reasonable in the sector and in relation to the service rendered."

This provision is one of several primarily intended to prevent people from abusing the tax concessions offered to PBOs. This restriction is unlikely to become an obstacle to the recognition of the exempt status of legitimate PBOs.

8: Trading limitations

Recognising the difficult financial situations in which most non-profit organisations find themselves, the new law allows organisations to earn income from a wider variety of business and commercial activities without jeopardising their tax exempt status. The following types of business income are permitted:

• Income totalling less than R25 000 per annum or 15 per cent of gross annual receipts, whichever is greater (the de minimis rule);
• Income from trading that is directly related to the organisation's purpose and that does not compete unfairly with non-exempt traders, provided the income generated is used to recover costs;
• Income from occasional trading conducted primarily using uncompensated, voluntary assistance; and
• Income from any other type of business activity explicitly approved by the Minister of Finance and noted in the Government Gazettte.

The Income Tax Act requires a PBO to acknowledge explicitly these constraints on business income in its constitution or founding document.

It is important to note that income from each of the last three types of trading may be excluded simultaneously. In other words, if an organisation earns 50 per cent of its income from trading directly related to its purposes (that does not unfairly compete with taxpaying enterprises and that is conducted on a cost-recovery basis), it can also exclude income earned from occasional trading using voluntary labour (such as a fête). However, if it uses the de minimis rule to exclude up to 15 per cent of its total receipts, then this must include all income from trading. It is not permitted to exclude related or occasional trading and then apply the de minimis rule to residual income from trading.

For further information on PBO trading restrictions, see SARS' Interpretation Note 24. [Note: Acrobat Reader is required to view this document.]

The trading restrictions are currently under review. It is hoped that they will be refined shortly to make them more appropriate to the needs of the PBO sector.

DEDUCTIBILITY OF DONATIONS

One way in which the government recognises the value of PBOs and encourages people to give money to support them is by allowing donors to deduct their gifts from their gross income, thereby lowering their taxes. In the past, only donations to universities and other tertiary educational institutions were tax deductible. Section 18A of the Income Tax Act empowers the Minister of Finance to publish a list of public benefit activities, donations in aid of which may be deducted from the donor's taxable income, subject to certain limitations. (For a blank Receipt see Appendix 10)

This list appears in Part II of the Ninth Schedule to the Income Tax Act (see appendix 8) and may be extended from time to time at the Minister's discretion. In 2003, the list was expanded considerably. It now includes most of the public benefit activities listed under the categories of: welfare and humanitarian; health care; education and training; land and housing; and conservation, environment and animal welfare.

A PBO that pursues one or more of these activities may apply to the Commissioner of Revenue for approval in terms of section 18A. Once such approval has been received in writing from SARS, the PBO may issue receipts in respect of donations received for public benefit activities listed in Part II of the Ninth Schedule. Such receipts must indicate:

• the organisation's name, address, and reference number;
• the donor's name and address;
• the date and amount of the donation;
• a certification that the receipt is issued for the purposes of section 18A of the Income Tax Act, 1962, and that the donation has been or will be used exclusively for the objects of the beneficiary PBO.

Initially, a PBO was permitted to obtain 18A status and to issue the required receipts only if it was engaged exclusively in public benefit activities designated as donor-deductible. However, amendments to the Income Tax Act in November 2003 permit an organisation that conducts both donor-deductible and non-donor-deductible activities to issue receipts for donations toward donor-deductible activities, provided the organisation submits with its annual tax return an auditor's certificate confirming that all donations for which receipts were issued were used for the activities in Part II of the Ninth Schedule.

A donor is only able to deduct a donation (whether in cash or in kind) from his or her taxable income if the deduction is supported by a receipt issued by the beneficiary organisation. The annual ceiling on allowable deductions by any taxpayer is 5 per cent of gross taxable income.

APPLICATION PROCESS

The original amendments to the Income Tax Act defining PBOs were enacted in 2000 and promulgated with effect from 15 July 2001. Any organisation whose tax exempt status was based on the old concession for "religious, charitable and educational institutions of a public character" will continue to enjoy an exemption until notified in writing by the Commissioner of Revenue that the exemption has been terminated. Currently exempt organisations have until 31 December 2004 in which to:

• apply for exemption in terms of the new requirements; and
• submit a written undertaking to the Commissioner of Revenue confirming its intention to comply with the provisions of section 30 of the Income Tax Act during the transitional period.

An applicant should complete and submit Form EI 1, together with:

• a copy of the organisation's constitution, trust deed, articles of association, or other founding document;
• a detailed narrative description of the organisation's past, present and planned activities in order of importance and with an estimate of the percentage of time devoted to each;
• a list of past and present sources of income;
• an explanation of the way in which assets will be distributed on dissolution; and
• the organisation's latest financial statement, if available.

The written undertaking (Form EI 2) commits the organisation to compliance during the transition period. It protects the organisation's tax exempt status until 14 July 2006 (at the latest), during which time the organisation must take the formal steps necessary to comply with Section 30 of the Income Tax Act, including making any necessary amendments to its constitution or founding document. (Note that this concession may be forfeited if, during the five-year grace period, an organisation makes any other changes to its constitution or founding document without also making the adjustments necessary to meet the requirements for tax exemption.)

Forms EI 1 (Appendix 9) and EI 2 (Appendix 10) are available directly from SARS or from the SARS web site.

Group registration

A group of organisations that:

• carries on public benefit activities,
• shares a common purpose, and
• operates under the direction of a regulating or co-ordinating body

In such a case, the regulating or co-ordinating body is responsible for ensuring that the subsidiary organisations comply with the law. The parent body will need to file consolidated annual returns accounting for the financial activity of all of the bodies included in the exempt group.

Objections and appeals

Any decision of the Commissioner, including decisions related to the approval or rejection of applications for PBO or 18A status, is subject to appeal. An objection to a decision must be made in writing, specify in detail the grounds on which it is based, and be lodged with the Commissioner within 30 days of the date of the decision.

If an organisation is not satisfied with the Commissioner's decision on the objection, it may appeal the decision to the Special Court for hearing income tax appeals within 30 days.

RELATED TAXES FROM WHICH PUBLIC BENEFIT ORGANISATIONS ARE EXEMPT

Capital Gains Tax

The capital gains tax, introduced in 2001, is a form of income tax, so organisations that are exempt from income tax will also be exempt from capital gains tax. Any capital donation (non-cash donations such as property, vehicles, shares, etc.) to a recognised PBO will only be exempt from capital gains tax if it is donated for 18A activities (i.e., if it would have been tax deductible had it been a cash donation). If capital gains tax is assessed on a capital donation, it is the donor (not the recipient) who must pay the tax.

Donations Tax

Individuals may make tax-free donations of up to R30 000 a year (R10 000 per year in the case of private companies). Contributions in excess of these amounts are subject to a donations tax of 20 per cent. Donations tax is normally payable by the donor, but if the donor fails to pay the tax within 90 days, the recipient also becomes liable to pay the tax. However, donations made by or to certain tax-exempt entities, including approved PBOs, are not taxed. For a sample of a Tax Exemption Receipt see Appendix 11.

Transfer Duty, Estate Duty, Stamp Duty, Skills Development Levy

Any organisation recognised by SARS as a PBO--and therefore exempt from income tax--will also be exempt from paying transfer duties, estate duties, and stamp duties.

The exemption from the Skills Development Levies Act, 1999, previously available only to religious and charitable organisations, is now offered to any approved PBO that solely carries on public benefit activities listed in sections 1, 2 (a)-(d), and 5 of Part 1 of the Ninth Schedule or that solely provides funds to such organisations.

For further information on Transfer Duties, see SARS' Interpretation Note 22. [Note: Acrobat Reader is required to view this document.]

PROPERTY RATES

Property rates, together with user charges for services such as water, electricity and sanitation, are the primary source of revenue for local government. Whereas provincial government is largely funded by revenue raised at the national level (income tax, VAT, company taxes, etc.), municipalities receive less than 15 per cent of their total income from national government.

The Constitution (s. 229) gives municipal governments the right to levy rates on property, subject to regulation by national legislation. Parliament enacted this regulatory legislation, the Local Government: Municipal Property Rates Act, Act No. 6 of 2004 (MPRA), in March 2004. The MPRA repeals the old provincial ordinances that previously regulated municipal rating policies and establishes a national framework within which local governments may adopt new rates policies. It permits municipalities to levy rates on some categories of owners and properties that were previously partially or fully excluded from paying rates, including public entities, farmers and other rural residents, independent schools, conservation bodies and some religious and charitable organisations.

A municipality is not required to assess property rates. If it chooses to do so, the MPRA sets out a process that it must follow to develop and implement a new rating policy. This provides opportunities for the public to comment on the proposed policy, to challenge property valuations, and to apply for rates reductions or exemptions in certain instances. Faith-based organisations should be aware of these opportunities and of the provisions of the new legislation so that they can consider how best to protect their interests at the municipal level. At the same time, they should take into account the need for municipalities to have adequate resources to carry out their constitutionally mandated and developmental responsibilities.

Applicability of legacy ordinances during transitional period

Until a particular municipality completes the policy development and valuation process described in the MPRA, it may continue to use for up to four years any rating policy and valuation rolls that existed prior to the effective date of the MPRA. Notwithstanding their repeal by the MPRA, the rating ordinances of South Africa's four former (pre-1994) provinces will continue to regulate such legacy municipal rating policies. In terms of these ordinances, land used by religious institutions -- including residences for ministers of religion registered in the name of the institution concerned -- is exempt from rates. Such land did not need to be zoned for religious purposes to be exempt; the sole test was "exclusive use". If a municipality has not yet adopted a new rating policy in terms of the MPRA, it is not permitted to impose rates on such properties.

New rating policies in terms of the MPRA

Before a municipality can levy rates in terms of the MPRA, it must follow a clearly defined process of developing and adopting a ratings policy and preparing a valuation role. The steps in this process are as follows:

Step 1: Developing a draft rating policy

A municipality must first develop a draft rating policy. The MPRA [sec. 3(3)] says that a rating policy must, among other things:

• Treat persons liable for rates equitably - In other words, it must deal with categories of property or owners without making special concessions or imposing unique burdens on specific individuals.
• Consider, and take steps to minimise, the burden of rates on the poor.
• Take into account the effect of rates on recognised Public Benefit Organisations (PBOs) pursuing "specified" public benefit activities - In terms of section 10(1)(cN) of the Income Tax Act, 1962, an organisation may apply to the South African Revenue Service (SARS) for recognition as a Public Benefit Organisation. One of the criteria for recognition is that the organisation pursues one or more public benefit activities identified in Part 1 of the Ninth Schedule of the Income Tax Act. "Specified" public benefit activities are defined in the MPRA as those listed in items 1 (welfare and humanitarian), 2 (health care) or 4 (education and development) of that list.
• Determine the criteria for granting any exemptions, rebates or preferred rates for certain categories of properties or owners.

Sections 16 and 17 of the MPRA prohibit municipalities from levying rates on certain types of property. In particular, section 17(1)(i) says that a municipality may not levy a rate on "a property registered in the name of and used primarily as a place of public worship by a religious community, including an official residence registered in the name of that community which is occupied by an office-bearer of that community who officiates at services at that place of worship". A draft ratings policy should therefore not envision the levying of a rate on such property.

Note, however, that this exclusion lapses if the property is sold or if it ceases to be used as a manse or a place of public worship. If the exclusion lapses, the religious community owning the property becomes liable to the municipality concerned for any rates that would normally have been payable on the property during the previous year. The amount due is regarded as rates in arrears and is subject to interest at the usual rate. (The parliamentary Portfolio Committee on Provincial and Local Government included this provision in an effort to deter speculation in such properties, which they found to have been a problem in the past.)

The MPRA permits municipalities to levy different rates for different categories of property. Section 8(2) sets out an extensive - and non-exhaustive - list of the types of property on which a municipality may consider imposing a differential rate. This includes communal land (as defined by section 1 of the Communal Land Rights Act, 2004), properties on which national monuments are proclaimed, and properties owned by PBOs and used for any public benefit activity listed in Part 1 of the Ninth Schedule to the Income Tax Act, 1962.

A rating policy may also establish criteria for the reduction or waiver of the rates payable by specific categories of owners or the owners of a specific category or properties [sec. 15]. Examples of such categories of owners include farmers, indigent people, people dependent on social grants for their livelihoods and owners of residential property with a market value less than a particular amount determined by the municipality.

Step 2: Enacting the draft rating policy

A municipality must follow a clearly defined public consultation process, consistent with the principles set out in Chapter 4 of the Municipal System Act, 2000, before it enacts or amends a rating policy.

The municipal manager must display the draft rating policy for at least 30 days at municipal offices and libraries and also on the municipality's web site (if any). The manager must also advertise the availability of the draft policy in the media and invite members of the public to submit comments on the draft policy for a period of no less than 30 days. The municipal council is required to take into account all comments received when it considers the draft policy. The municipal council must then adopt by-laws to give effect to a rating policy.

Faith-based organisations, including individual congregations, are encouraged to watch for public notice of the consultation process associated with the adoption or amendment of the municipal rating policy in their respective locales. Even if an organisation expects to have its property excluded from rates, it is advised to monitor and participate in the consultation process to help ensure that the rating policy is fair and consistent with the provisions of the MPRA.

Step 3: Valuation of properties

Once a rating policy has been enacted, a valuation roll must be drawn up. Normally, all properties, including churches and most other excluded categories, must be valued, although a municipality may seek exemption from this requirement in respect of certain categories of property (including places of public worship) if it does not have the financial or administrative capacity to do so [sec. 30(2)]. A municipality must first appoint a suitably qualified municipal valuer who may either be a municipal official or a person in private practice. Provision is also made for the appointment of assistant valuers and data collectors, if necessary.

Property is to be valued at market rates, in accordance with "generally recognised valuation practices, methods and standards" [sec. 45]. Valuation assesses the amount that the property (i.e., the land together with any structure or other immovable improvement) would realise if sold on the open market by a willing seller to a willing buyer. In general, valuers and data collectors may inspect a property between 7h30 and 19h00 (except a Sunday or public holiday)for the purposes of valuing that property. However, a physical inspection of a property is optional. Comparative, analytical or other techniques, including aerial photography and computer-based mass appraisal systems, may be used to value properties. If market-related data is insufficient to permit the valuation of a particular category of rateable property, then that property may be valued using a mass valuation system approved by the municipality.

A valuation roll must then be prepared that reflects the particulars of each property within the municipality. In addition, a municipality must compile and maintain a two-part register of all properties within the municipality. Part A of this register consists of the valuation roll; part B must specify which properties in part A are excluded from rates or have been granted any rates reduction, rebate or exemption.

Step 4: Inspection of the valuation roll

Once a valuation roll has been drawn up and submitted to the municipal manager, it must be open to public inspection. Within 21 days of receiving the valuation roll, the municipal manager must publicise the inspection process by:

• Publishing in the media for two consecutive weeks notice of the inspection period, which must last for at least 30 days from the publication date of the second notice.
• Notifying the owner of every property listed on the valuation roll of the inspection period and supplying that owner with the extract from the valuation roll pertaining to that owner's property.
• Posting the valuation roll and notice of the inspection period on the municipality's web site, if any.

The valuation roll must be available for inspection during office hours at the municipal offices throughout the inspection period. During this period, a person may lodge with the municipal manager a written objection to the valuation (or omission) of any particular property. The municipal manager must assist an objector to lodge an objection if that person is unable to read or write.

Within 14 days of the end of the inspection period, the municipal manager must forward all objections received to the municipal valuer for consideration and action. If, as a result of this review, the municipal valuer adjusts the valuation of a property by more than 10 per cent (either upwards or downwards), the valuer must give written reasons for the adjustment; these are then passed on to a municipal appeal board, established by the provincial MEC for local government, for review and confirmation, amendment or rejection.

The municipal valuer must, in writing, notify every objector (and also the owner of the property concerned if the owner did not lodge the objection) of:

• The valuer's decision regarding the objection;<.li>
• Any appeal board action relevant to the objection; and
• Any adjustment made to the valuation roll in respect of the property concerned.

Within 30 days, the original objector, the owner of the property concerned or, if the municipality's interests are affected, the municipal council may lodge an appeal against the outcome of an objection with the municipal appeal board. The appeal board must meet within 60 days to decide on the appeal. An appeal board has the right to inspect a property if necessary to reach a decision. The lodging of an objection or appeal does not defer liability for the payment of rates beyond the date determined for payment.

Step 5: Implementation of the rating policy

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 four financial years. A new rating policy takes effect on the effective date of the first valuation roll prepared by the municipality in terms of the MPRA.

A municipality must adopt a resolution levying rates. This must be published in the Provincial Gazette and the media and posted for at least 30 days at municipal offices and libraries and on the municipality's web site (if any).

A rate becomes payable at the start of a municipality's financial year or, if a municipality's budget is not approved by the start of the financial year, as from such later date when the municipality's budget - including a resolution levying rates - is approved by the provincial executive.

Where a rate is assessed on a property for the first time, it 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. A rates levied on newly rateable property owned and used by a PBO conducting specified public benefit activities (e.g., those listed in items 1, 2 and 4 of the public benefit activities list that appears in Part 1 of the Ninth Schedule to the Income Tax Act) must be phased in over four years, with no rates payable in the first year. This allows such organizations to apply for rates exemptions, rebates or reductions. The phasing-in period may be extended by the relevant MEC for local government, provided it does not exceed six years.

Land administered by traditional authorities

The MPRA does not require that rates be assessed on land in areas administered by traditional authorities. It will be up to each municipality to decide this matter independently. However, it will be very difficult for municipalities to levy rates in communal areas unless "old order rights" are converted to "new order rights" in terms of the process set out in the Communal Land Rights Act, 2004 and unless such property is then registered in the name of an individual or a community.

Even where there is individual ownership, property must first be valued. The MPRA excludes from rating the first R15 000 of the market value of residential property (or properties used for multiple purposes, provided one or more components are used for residential purposes). Furthermore, land reform beneficiaries are excluded from rates for 10 years, after which any new rate must be phased in over three years. The Portfolio Committee on Provincial and Local Government felt that these provisions would effectively postpone the levying of rates in traditional authority areas for many years.

Land used, but not owned, by religious communities

During the debate on the MPRA, the South African Council of Churches and other religious bodies observed that many congregations hold public worship on property that is registered in the name of an individual, rather than in the name of a church. Similarly, it was pointed out that there is a growing tendency for religious communities to provide housing subsidies to enable clergy to purchase their own homes, rather than providing housing owned by the community. The Portfolio Committee on Provincial and Local Government acknowledged these two realities, but did not make specific provision for such situations in the MPRA. However, in its final report to the National Assembly, the Committee urged municipalities to consider exempting such properties from rates if a religious community is able to present evidence that it normally uses a property for public worship or for the accommodation of clergy.

NOTES

1. Section 10(1)(f).
2. See sections 10(1)(cN) and 30 of the Income Tax Act, 1962.
3. Section 30(3)(b) of the Income Tax Act.
4. See section 30(4) of the Income Tax Act.
5. Section 30(3)(g) of the Income Tax Act.
6. Section 30(3)(d) of the Income Tax Act.