Interpreting the Municipal Property Rates Act

The implementation of the Municipal Property Rates Act is causing a stir in agricultural communities across South Africa. Prof Louis de Clercq, emeritus professor of the University of KZN, has 28 years of experience as a municipal councillor, 20 of which he spent as mayor. He was also president of the Natal Municipal Association and the United Municipal Executive of South Africa. Susan Botes spoke to him.
Issue Date 11 May 2007

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The implementation of the Municipal Property Rates Act is causing a stir in agricultural communities across South Africa. Prof Louis de Clercq, emeritus professor of the University of KZN, has 28 years of experience as a municipal councillor, 20 of which he spent as mayor. He was also president of the Natal Municipal Association and the United Municipal Executive of South Africa. Susan Botes spoke to him.

Will farmers benefit at all
from the municipal services
they now have to pay for?
Municipalities collect, through tariffs, money for services such as water and sewage. Property rates are collected through a tax levied on all owners of rateable property. It is important not to confuse these two issues. If a farmer receives water from the municipality, the farmer will have to pay for that service separately from his or her property rates. That payment is normally based on the kilolitres of water used, for example 100 kilolitres at R4/kilolitre = R400.

When will rates be implemented?
The final date for the implementation of the Municipal Property Rates Act is 1 July 2009, based on the municipal financial year, which is from 1 July to 30 June.

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Must every landowner’s property be
valued individually, or may valuers take
an overview of the whole municipality’s
land and then work out an average
value per hectare?
The act provides for categories of property such as residential, commercial, farm and several others. All properties within the municipal area should be valued whether they are eventually going to be rated or not.
Each category of property must be valued at its market value, in other words be based on the principle of “willing buyer, willing seller”. Valuers can therefore not base their valuation on an average per hectare of all the municipality’s land. In the case of farmland the valuer must attach a value to the land based on its dominant use or on multi-purpose use, depending on the rates policy of the municipality.

What must landowners look out for?
The act requires community participation in the process of preparing a final rates policy. First a draft policy must be prepared and published, and the community (including interest groups) must have an opportunity to comment on it.
The municipality must publish the valuation roll, which notifies individual landowners of the value of their properties, and must receive objections and appeals against the value of individual properties, submitted on the prescribed form. Municipalities must also promulgate rates by-laws to enforce their rates policy. Interest groups like farmers’ associations should ensure they have the necessary expertise to deal with the municipalities during the implementation process.

Are any farmers exempt from paying rates, for instance those who received their farms through restitution?
All farmland is rateable. However, a municipality may not levy rates on a property belonging to a land reform (restitution) beneficiary, although this exclusion lapses 10 years after such a beneficiary’s title is registered with the registrar of deeds. After that, such land will be treated as newly rateable and rating will be phased in over four years, as is the case with any agricultural land that becomes rateable for the first time.
Are there conditions under which ­farmers can be exempted from the tax?
There is no provision for exemptions from rates; the issue is how the rating will be determined. That requires discussion between farmers and the municipality.

Are emerging black farmers also obliged to pay the rates?
A black farmer who owns property will have to pay rates in the same way as his or her white counterpart.

We heard some farmers are being offered rebates on the taxes. Can you clarify this?
The municipality may grant rebates to a specific category of property, and agricultural land is one of those categories. The municipality must, however, ensure equity and so it has to give such rebates to all properties in that category.

Which will be used to determine the ­taxation rate – market value or
production value?
There are three processes involved in implementing the act. The first is preparing a property register that includes all categories of property as identified by the municipality. This is normally done by valuers and their teams.
The second is for the valuer to prepare a valuation roll in terms of the requirements of the act. This is based on market value, but in determining the market value various criteria must be considered, such as any licence, permission or other privilegegranted in relation to the property and the value of immovable improvements. When valuing a property used for agricultural purposes, the value of any annual crops or growing timber on the property that has not yet been harvested must be disregarded.
The third process is the actual rates assessment. This uses the rate-randage, or number of cents in the rand used to calculate the rates payable by the property owner. For example, if the property is valued at R100 000, at a rate-randage of one cent in the rand the formula is R100 000 x 0,01 = R1 000. The compulsory phasing-in of rates on agricultural land, using the above example, would mean that the farmer will pay R250 the first year, R500 the second, R750 the third and R1 000 the fourth year. The rate-randage must be determined annually by the municipality, and is normally done when the municipality prepares its budget.

If farmers do not agree with the ­valuations reached by ­municipalities, what redress do they have?
They can lodge objections and appeals against the valuation of their properties on the prescribed forms. These objections must be dealt with by the valuer and eventually by the Valuation Appeals Board to be appointed by the provincial MEC for local government.
It will also be essential for farmers to do a proper analysis of the municipal budget, a draft of which should be available by the end of March each year, in order to comment on expenditure and rates assessments.
In your opinion, is the tax is being used to push farmers off their land?
The way in which government and municipalities deal with the rating of agricultural land will give a clear indication of what the intention of the legislation is. The first impression is that this tax is an effort to broaden the tax base of local government. It is obvious that if the taxation is not managed with caution and transparency, it could be interpreted as an effort to push farmers off their land.

If farmers can’t see eye to eye with their municipality, is there any mediation or arbitration body that can help?
The popular political view is that local government is important because it is closest to the people on the ground. Good relations between farmers and their municipalities are critical, not only in respect of the property rates act and its implications for both municipality and farmers, but also the interaction required by law in terms of the municipality’s integrated development plan, budget, and performance management system. Farmers’ associations or organised agriculture should ensure there is cooperation between themselves and their municipalities by signing memoranda of understanding which deal with possible dispute resolution mechanisms. This could be a way of avoiding conflict and lack of consultation.
There is no other formal mediation or arbitration mechanism in place. However, Section 16 of the act provides for ministerial intervention if a rate-randage materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries or the national mobility of goods, services, capital or labour.

Do you think municipalities have the skills to administer and levy this tax?
There are municipalities that have the skills, but there are also those that are going through a learning curve, as has been the case with local government legislation since 1997. The wall-to-wall municipalities and the ­inclusion of all categories of property into the ­municipal valuation rolls and rating system are new concepts for everyone, even those ­municipalities that worked with rates before.

How does the municipality decide on the
rates to be levied? Can this differ from district to district?
The determination of rates is closely linked to the budgetary requirements of the municipality. No municipality is allowed to budget for a deficit. The amount each municipality needs is dependent on the income it can generate by means of rates income, grants and interest on investments. Rates income is therefore a highly important factor in municipal finances. The rate-randage per property category can differ from one local municipality to the next. District municipalities cannot levy rates except where their area of jurisdiction covers a district management area.
Contact Professor de Clercq on 082 801 3003. |fw