Legislative Background

1.1    The Constitution

A municipality derives its powers to impose rates originally from the Constitution.  Section 229 of the Constitution states that a municipality may impose rates on a property and surcharges on fees for services provided by or on behalf of a municipality.  The power to impose rates is subject to Section 229(2) which states that "a municipality may not exercise these powers in a way that materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries or the national mobility of goods, services, capital or labour" and the municipality must also comply with national legislation.

1.2    National Legislation enacted between 1998 and 2004 to restructure Local Government

Apart from the Constitution, historically, municipalities in KwaZulu-Natal derived their rating powers from the Local Authorities Ordinance 25 of 1974 (Natal) (the Ordinance). The local authorities Ordinance previously stipulated that a council had power to assess and levy a general rate upon all immovable property within a borough.  The comprehensive restructuring of local government initiated by the Structures Act created inclusive municipal areas, with the result that all land owners now fall within a municipality or council's jurisdiction.

During the transitional period and until the Act came into force, municipality's rating powers were sourced also in the Local Government Transition Act 209 of 1993 (the LGTA).  This was largely repealed by the Structures Act, the Systems Act and the Local Government: Municipal Finance Management Act of 2003 (the Finance Management Act).  Section 10G(7)(a)(I) of the LGTA gave a council power to levy and recover property rates in respect of immovable property within its area of jurisdiction in terms of a common rating system.  There was much litigation about attempts by municipalities to levy rates over immovable property not previously rated in accordance with a "common rating system".  

In 2004, parliament passed the Local Government: Municipal Property Rates Act (the Act) as the final piece of legislation in the set of statutes that gave effect to local government reform.  The Constitution gave parliament the power to regulate, by national legislation, a municipality's constitutional authority to impose property rates.  It is common cause that the Act is such legislation.  The Act was assented to on 11 May 2004 and brought into operation on 2 July 2005.  It makes express provision for a category of "newly rateable properties" on which rates were not levied before.  It requires that rates on these properties must be phased in over three financial years.  The Act also regulates the transition between its commencement (with repeal of the relevant provisions of the Ordinance) and the eventual implementation of the rating system it embodies.

2.
The Rates Act

2.1    General

Section 2 of the Rates Act states that a municipality, when exercising its power to levy a rate on property, must act subject to Section 229 of the Constitution and any other applicable provision of the Constitution, the provisions of the Rates Act and its rates policy adopted in terms of Section 3.  

Section 3 stipulates that the rates policy adopted by the municipality must take effect on the date of the first valuation roll prepared by the municipality, must accompany the municipality's budget when the budget is tabled and must treat persons liable for rates equitably.  

The rates policy must determine the criteria to be applied by the municipality if it levies different rates for different categories of properties.  The word "category" in relation to property is defined to be "a category of properties determined in terms of Section 8".  Section 8 states that "subject to Section 19, a municipality may, in terms of the criteria set out in its rates policy, levy different rates for different categories of rateable property which may include categories determined according to the:

(a)    Use of the property;
(b)    Permitted use of the property; or
(c)    Geographical area in which the property is situated."

Section 8 (2) states that the categories of rateable property that "may be determined in terms of subsection 1 include the following:

(i)    Residential properties;
(ii)    Industrial properties;
(iii)    Business and commercial properties;
(iv)    Farm properties;
(v)    Farm properties used for a specific purposes;
(vi)    Farm properties not used for a specific purpose;
(vii)    Small holdings;
(viii)    State owned properties;
(ix)    Municipal properties;
(x)    Public service infrastructure;
(xi)    Privately owned towns;
(xii)    Formal and informal settlements;
(xiii)    Communal land;
(xiv)    State trust land;
(xv)    Properties related to land assistance;
(xvi)    Protected areas;
(xvii)    Properties on which national monuments are proclaimed;
(xviii)    Properties owned by public benefit organisations and used for special public benefit activities;
(xix)    Properties used for multiple purposes subject to Section 9."

2.2    Limitations on Levying of Rates contained in Rates Act

Part 3 of the Rates Act contains certain limitations on the levying of rates.  Section 16 repeats section 229 of the Constitution. It states that a municipality may not exercise its power in a way that would materially and unreasonably prejudice:

(a)    national economic policies;
(b)    economic activities across its boundaries; or
(c)    the national mobility of goods, services, capital or labour.

Section 16(3) states that any sector of the economy, after consulting the relevant municipality or municipalities and organised local government, may, through its organised structures, request the Minister to evaluate evidence to the effect that a rate on any specific category of properties, or a rate on a specific category of properties above a specific property in the Rand, is materially and unreasonably prejudicing any of the matters listed in sub-section 1.  After hearing representations, the Minister may, after notifying the Minister of Finance, issue a notice in the Gazette limiting the rate to be imposed by the municipality.

Section 16(5) states that the Minister, after consultation with the Minister of Finance, may by notice in the Government Gazette, issue guidelines to assist municipalities in the exercise of their power to levy rates so that the rates are consistent with sub-section 1.

Section 19 states that a municipality may not levy a rate on non residential properties that exceeds a prescribed ratio to the rate on residential properties.  It also may not levy a rate which unreasonably discriminates between categories of non-residential properties.  

The ratio between the residential rate and the non-residential rate may only be prescribed with the concurrence of the Minister of Finance.

Section 20 states that the Minister may, with the concurrence of the Minister of Finance, and by notice in the Gazette, set an upper limit on the percentage by which rates on properties or a rate on a specific category of properties may be increased.  Section 20(4) states that the Section must be read in conjunction with Section 43 of the Municipal Finance Management Act.  Section 43 of the Municipal Finance Management Act states that if a national or provincial organ of state in terms of a power contained in any national or provincial legislation determines the upper limit of a municipal tax or tariff such determination takes effect for municipalities on a date specified in the determination.  

Section 21 provides for a compulsory phasing in of certain rates.  In particular, it states that a rate levied on newly rateable property must be phased in over a period of three financial years as follows:

(a)    in the first year, the discount must be 75% of the rate;
(b)    in the second year, the discount must be at 50% of the rate;
(c)    in the third year, the discount must be at least 25% of the rate.

2.3    Valuation

The general basis for the valuation is the market value of the property.  The market value is defined in terms of Section 46 as being the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer.  

Section 49 states that once the valuation roll has been completed, a notice must be published in the provincial gazette and in two consecutive weeks of the media stating that it is open for inspection.  The municipality must also disseminate the substance of the notice to the local community in terms of Chapter 4 of the Municipal Systems Act.  Chapter 4 of the Municipal Systems Act requires a municipality to adopt a culture of governance that ensure that there is participation from the community.  For example, Section 21 of that Act states that when anything must be notified by a municipality, it must be done through the media to the local community including in local newspapers and over the radio.

In addition, the municipality must serve a copy of the valuation by ordinary mail or, if appropriate, in terms of Section 115 of the Municipal Systems Act, on every owner of property listed in the valuation roll.  If the municipality has an official web-site, the notice and valuation roll must also be published on that web-site.  

Section 115 of the Municipal systems Act sates that a notice which must be served on a person is deemed to have been served when it is delivered to that person personally, when it is left at the person's place of residence, when it has been posted by registered or by certified mail or if the person is out of the Republic, where it has been posted at a conspicuous place on the property.

Section 50 states that any person may, within a period stated in the notice, inspect the roll and lodge an objection against any matter reflected or omitted from the roll.

In terms of Section 50(5), the municipal manager must, within 14 days after receipt of the objection, refer the objections to the municipal valuer who must then decide and dispose of the objections in terms of Section 51.

Section 51 states that the municipal valuer must promptly consider the objections, decide on the objections and adjust or add to the valuation roll in accordance with any decisions made.

Section 53 states that the municipal valuer must, in writing, notify every person who has lodged an objection of his decision in terms of Section 51 and any adjustment made in respect of the property concerned.  He must also notify the objector whether Section 52 applies to the decision. Section 52 states that if the adjustment is more than 10% upwards or downwards then the municipal valuer must give written reasons to the municipal manager and the matter must also be referred to the valuation appeal board for a compulsory review.

Within 30 days after notification from the municipal valuer, an objector may apply to the municipal manager for reasons for the decision.  A prescribed fee must accompany the application.  The municipal valuer must, within 30 days after receipt of such application by the municipal manager, provide reasons for the decision to the applicant in writing.  Section 54 then states that an appeal to an appeal board against a decision of the municipal manager may be lodged.  The appeal must be lodged within 30 days of the date on which written notice referred to in terms of Section 53(1) was sent to the objector or, if the objector has requested reasons in terms of Section 53(2) within 21 days after the day on which the reasons were sent to the objector.  

The municipal manager must then forward the appeal to the chairperson of the appeal board within 14 days of receipt.  

The chairperson of the appeal board must consider any appeals within 60 days after an appeal has been forwarded to the chairperson.  

Section 56 provides for the establishment of a valuation appeals board.  The appeal board must comprise of a chairperson who must have legal qualifications and sufficient experience and not fewer than 2 and not more than 4 other members with sufficient knowledge of or experience in the valuation of property.

3.
Regulations : Local Government Municipal Property Rates Act

Regulations on the Rates Act were published in the Government Gazette of 18 October 2006. These regulations deal with the procedure in lodging objections to a valuation roll.

Section 4 prescribes the information to be contained in a notice calling for inspection of the valuation roll.

Section 5 deals with the manner of lodging an objection.  

Section 6 deals with the manner of lodging an appeal.  

Section 8 deals with the internal procedures to be followed by the valuation appeal board.  

The valuation roll must include, in respect of each property, the following:

3.1    the description of the property;
3.2    the owner of the property;
3.3    the category determined in terms of Section 8 of the Act in which the property falls, for example, residential, industrial, commercial etc;
3.4    the physical address of the property;
3.5    the extent of the property;
3.6    the market value of the property;
3.7    any other prescribed particulars.