Rate Payers

Andrew Layman:  PCB CEO

It is an interesting thing about rate-payers that most of them believe that they are being over-charged.   I’m sure this relates to a lot of misunderstandings about property rates and how they are calculated.   It is not appropriate to equate the rate payable to municipal services, for these are all paid for directly in terms of different tariffs.    Rates are local taxes which fulfil the same general purpose as the payment of income tax to the central government.    For the welfare of the city as a whole and its people, there has to be a municipal structure and to sustain this, an income is required.   The income is generated by taxing the people who live in the city, and, whether we like it or not, it is a fairly universal practice that the amount that one has to pay is related to one’s ability to do so.   Wealthier people pay more, just as higher earners pay more income tax.    Some of these taxes also support municipalities.  The so-called equitable share is a grant from the central government in order, primarily, to fund the provision of basic services to indigent households.  In theory at least, those who pay for electricity and water are not paying for someone else to be serviced with these benefits.   The concept of the local funding of local government is one that is difficult to reject.    And the way in which we ensure that we have a functioning and effective municipality is to pay the rates that are required to sustain this structure.

After the controversies surrounding property rates in recent years, many argue that the Municipal Property Rates Act is responsible for such unhappiness.   This is an unfair position as far as that piece of legislation is concerned.  It introduced a nation-wide system of determining rates that is far more acceptable than the one used in this province before.    A reminder: we used to pay two rates; one on the market value of the property (without any improvement), and another on the replacement cost of the building.    Market value of land alone was almost impossible to determine in built-up areas, while replacement cost was usually a very arbitrary guess.   The total market value of the property, which is the index used now, is a much fairer and more easily-determined figure.    There are two reasons that owners don’t like it.   One is that property values escalated at a very fast rate over the six years between the previous valuation and the most recent one.   This meant that the rates escalated as well.  The second reason is that, inexplicably, the internationally-credible company that was given the task of doing valuations seems to have made a number of very significant errors, errors that undermined the integrity of the whole valuation roll.   There is a third reason, and that is that it is difficult for owners to accept that their property has a market value when they are not planning to sell.   In reality, of course, a property value is realised only when it is sold.   

It is not everyone’s view, but the Msunduzi Municipality has dealt with rates better than many others.   The increases in the rate-randage have been reasonable because the anticipated income from rates has not been raised by any drastic percentage.  The average for the new financial year is 8%.   For reasons that are not completely clear, but which relate to omissions last year, the rate-randage for residential properties has been increased by 28%, but this does not translate into an increase of that magnitude for almost all property owners.    In fact, at the lower end of property values, the rates to be paid will be less.   The reason for this is that a standard reduction in the value of the property by R135 000 has been applied.    Thus, an owner whose property is valued at R500 000 will pay rates on R365 000.   At a rate of 0,0096 cents in the Rand, this amounts to R3 504 pa, a reduction in rates.  On a property of double that value, R865 000 will be rated and this will amount to R8 304.  This rate-payer was liable for R7 500 last year.   Rates on agricultural property have been significantly reduced, while commercial property owners have to pay just over 8% more.   Public benefit organisations have been given a hundred percent rebate, provided they satisfy the conditions of this status.   Overall, we should be thankful that we do not own property in some municipalities which have abused the new act and used it to fleece the rate-payers.     

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