Property rates not a once-off negotiation

Negotiations with some municipalities to apply the Municipal Property Rates Act according to draft guidelines published by the Department of Provincial Affairs and Local Government, have been successful in some provinces. In others, however, unbalance

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Negotiations with some municipalities to apply the Municipal Property Rates Act according to draft guidelines published by the Department of Provincial Affairs and Local Government, have been successful in some provinces. In others, however, unbalanced and absurdly high rates have been charged. The Natal Agricultural Union says they will challenge municipalities in court if they don’t take into account the needs
of the agricultural sector. David Steynberg investigates.

When the first draft of the Municipal Property Rates Act was drawn up, the KwaZulu-Natal Farmers Association (Kwanalu) formed a task team to look at all the technical issues and to mobilise farmers’ associations to get involved in the details of the act,” says president of Kwanalu, Robin Barnsley. “At that time the maximum rate our farmers could afford was 5%.”

Much of the farmer-friendly provisions of the act, such as the rebates, were introduced after Kwanalu’s involvement in the drawing up of the act. While many positives have emerged in KZN in terms of involving all farming sectors in tabling five years’ worth of economic data, municipalities don’t seem to be fully buying into the information submitted to them. “While negotiations between Kwanalu and the municipalities have been positive and frank, the new act actually requires chief financial officers to do some financial legwork,” says Barnsley. “It seems many are not applying themselves to mathematically calculate the best rates policy for the different sectors – rates that are financially viable.”
Exorbitant rates for Mooi River

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According to Barnsley, the Mooi River municipality proposes a rate of 1,25% for agriculture, 5% for residential and 10% for commercial. “This is after we said that 0,5%, before rebates, was what our members could afford,” says Barnsley.
This means that on a farm worth R4 million, rates alone would amount to R20 000 per year, or R1 666 per month.

“We have been interacting with the municipality since February last year,” says the chairperson of the Mpofana (Mooi River) Ratepayers’ Association, John Armstrong. “We gave them the draft compiled by Agri SA and Kwanalu on what rates are affordable. They know that anything above 0,5% is unsustainable.”

Armstrong says the municipality only published its intentions to meet with the community in one local newspaper. “literally gave us one working day’s notice about the meeting,” says Armstrong. “They have our telephone numbers, but didn’t contact us. have no will to cooperate and it’s an indictment against the process set out in the act.”

The proposed rates have caused a great deal of anger in the community and will likely discourage local investment. “Who will buy property now?” asks Armstrong. “The 10% for commercial property owners will drive people away. What the municipality fails to see is that it will soon be left with a ghost town.”

Proposing a counter-strike With 30 days open for public comment, Ian Outram, who serves on the ratepayers’ committee, says that the committee was ready to submit a counter proposal. “We just don’t want to jump the gun and are ensuring our proposal matches Kwanalu’s,” he says.

According to a report in The Witness, “shocked resident said the municipality’s own presentation showed that a farmer currently paying R267 a month with the new tariff will be paying R1 267 a month – an increase of 382%”. It’s this indifference to consider Kwanalu’s comments based on detailed case studies that has prompted the organisation to consider legal action against the Minister of Provincial Affairs and Local Government, Sydney Mufamadi. “If he doesn’t respond to our submissions by the end of April, we will go forward with legal proceedings,” says Barnsley. “This challenge is so important because it will set a precedent on the methods used to determine a rate for agriculture.

This will benefit the entire country in the long-term and we welcome submissions from the other provinces.” So far eight local municipalities in KZN have adopted the new rates policy, while 16 are expected to implement it by July this year and the remaining 36 by the July 2009 deadline.

“It’s important to have sound financial data and detailed case studies from farmers’ associations because farmers are going to have to haggle over their rates every year,” says Barnsley. “This is not a once-off negotiation.” Contact Sandy LaMarque at Kwanalu on 083 289 0758 |fw

The nuts and bolts

  • The Municipal Rates Act (6 of 2004) was promulgated on 2 July 2005.
  • All local municipalities have until July 2009 to implement the act’s ordinances.
  • The act gives local municipalities the power to conduct their own valuations and set their own rates policies, in agreement with requirements set out in the act’s policy framework.
  • Before a rates policy can be adopted by a local municipality, the community needs to be involved in the ratings process and the draft rates policy must be displayed at the municipality’s offices as well as at libraries or on the municipality’s website for at least 30 days to allow for public comment.
  • Economic impact studies need to be conducted to ensure rates increases don’t negatively impact on the economy of the community.
  • Land reform beneficiaries may not be levied on the value of their properties for a period of 10 years from the date the beneficiary’s title was registered at the Deeds Office.

Calculating your rate

Because rates are normally displayed in cents in the rand, Agri SA’s proposed rate of 0,5% (R0,005 = 0,5c) is calculated as follows: if the property has a market value of R1 million, the annually payable rates will be R5 000 (R1 000 000 x R0,005) or R416,7 per month. Source: Agri SA

How farmers can negotiate better rates

Commercial producers, who are bona fide farmers, also qualify for exemptions, rebates and reductions to the tune of up to 75% of the value of their properties.
The Department of Provincial Affairs and Local Government published certain draft guidelines that could be considered when negotiating a better rates structure. These include: a 30% rebate for an absence of municipal water and electricity; a rebate of between 5% and 10% if there is compliance with minimum wage structures; a rebate of between 20% and 25% if farmers provide housing, electricity and water for workers
Also, when determining the market value of land, the value of cash crops and forestry plantations not yet harvested should be left out of the valuation, while if a farm house forms part of the assets to be taxed, the rateable value will be reduced by R15 000.

The valuation process

Local municipalities must conduct general valuations not more than 12 months before the start of the next financial year in which the valuation roll is to be implemented. This is done for accuracy in keeping with market conditions.
Once the public has been given a chance to comment on the draft valuation roll, it is to be implemented at the start of the financial year. If the municipality receives no disputes over the validity of valuation during that financial year, it may continue to charge the same rates in the next financial year.

The valuation roll may not be used for more than four years, unless the MEC for local government decides on a fifth year.
To ensure objectivity, each municipal valuer must be a registered professional valuer and may not be a councillor of either the designating municipality or the district municipality.

Two beneficial negotiations in Limpopo

  • In Tzaneen last year the local municipality failed to form a consultative community forum – as required by law – or effectively consult with community members regarding the proposed rates. However, instead of fighting against each other, the farmers in the area and the local municipality decided to start from scratch with negotiations on valuation methods. The farmers were able to win concessions such as rebates for farmworker and farm dweller housing and schools, as well the municipality to provide firefighting kits to each farmer association and to help fight invasive plant species.

  • After a year and a half of negotiating with the Lephalale municipality, farmers have managed to negotiate a new policy document that stipulates how valuations should be conducted, four categories of farms to ensure ratingsmore balanced, game farms included as land used for agricultural purposes and that properties smaller than 10ha be classified as smallholdings.Such a proactive approach goes a long way towards ensuring land gets taxed according to its true value

Legislation related to the Municipal Property Rates Act

  • The constitution outlines municipalities’ objectives as ensuring the provision of services to communities in a sustainable manner, promoting a safe and healthy environment as well as encouraging involvement of communities and community organisations in matters of local government.
  • The Local Government Municipal Systems Act (117 of 1998) makes provision for municipalities to annually review the needs of the community and prioritise meeting those needs.
  • The Local Government Municipal Financial Management Act (56 of 2003) states that the annual budget and relevant documents have to be made public and that the local community should be invited to submit representations. It also says that an annual budget may only be funded from a realistically expected income.

Two areas of concern

Organised agriculture is concerned that the Municipal Property Rates Act doesn’t view land used for ecotourism and the trading and hunting of game as property used for agricultural purposes. In January this year Agri SA again called for the act to include these as agricultural. The Department of Provincial Affairs and Local Government refused to give comment on how it was addressing this concern. But in Lephalale, Limpopo, farmers have managed to get their municipality to recognise game farming as agricultural, thus subjecting it to the same rebate benefits as crop and livestock production.

Agri SA would also like to see a cap on the tax municipalities can charge farmers and that general guidelines released previously, which led to the proposed ratio of 1:0,25 for the agricultural sector, was not economically viable.

“Given the fact that an actual rate of, for example 4%, on residential properties could, in terms of the proposed formula, lead to an effective rate of 1% (generally viewed as unaffordable) on agricultural properties, Agri SA is of the view that the following changes should be made,” said Agri SA president Lourie Bosman earlier this year. “Given profitability considerations as well as recent hikes in land prices, Agri SA wishes to suggest that the Two areas of concernratio applicable on agricultural land should be fixed at a maximum of 1:0,1. This ratio should further be subjected to a maximum of 0,1% on agricultural land. This implies that the ratio will only apply when rates on residential properties are less that 1%.”

Again, the Department of Provincial Affairs and Local Government was unable to deliver comment in this regard.