Local government viability, local government taxation : local government viability : an analysis of municipal tax sources in South Africa and the application of international trends to broaden the tax base / by Wynand Petrus Steyn
Local government finance in South Africa is experiencing extreme financialpressure due to the expectations of both politicians and the voter core. Thepoliticians who, in their election campaigns, promised the voters betterinfrastructure mainly created these expectations. Central and Provincialgovernment added to this pressure with the devolution of functions to localgovernment level. The financial resources transferred by central and provincialgovernment to local government for these additional functions, however, have notkept pace with the responsibilities. This is leaving a shortfall that must befinanced by local government from their own resources.The pressure to improve and provide new infrastructure and services far exceedsthe availability of funds. Local government has three alternatives to provide theneeded funding. First it can increase its rates and taxes to a level where revenueand expenditure come to equilibrium. The problem with this alternative isaffordability. Taxes can only be raised to a certain level before formal resistancefrom ratepayers will result in refusals to pay or they would geographically move toan area where taxes are more affordable.Second, local government can investigate and implement alternative revenueresources. A number of such alternative sources were found during this study ofinternational trends. One example is indirect tax, which is raised at one point andthen devolved downward to the end user of the goods or service. The advantageis that both the owners of property as well as all other inhabitants of the areacarry the tax burden.At the same time, local government must ensure that the base (property values)on which these taxes are calculated stay current in relation to market trends. Thiscan be achieved by ensuring that revaluations take place on a yearly basis for allproperties. There are various methods, such as the relative sales approach, thatlocal government can use in this process to counter the prohibitive costs of ayearly zero based evaluation.Current legislation in South Africa is over prescriptive and amendments areneeded to ensure local authorities maintain their autonomy and discretion overtheir own affairs. One example of such prescriptiveness is the exemption of thefirst R 15,000 of the valuation of residential property value. This section in the Actis certainly regressive as far as small local authorities are concerned. Valuationsin small local authorities, as a norm, are much lower than that of their largercounterparts. The result is that they, the small local authorities, lose a largerproportion of their tax revenue due to this exemption. Legislation needs to beamended to allow for a percentage of valuation as exemption. This will ensurethat both large and small local authorities carry a relatively equal loss in revenue.The study proposes a number of amendments to legislation currently in placeand through the financial model show the effect of such amendments on propertytax revenue. The model further strengthens the findings that legislationamendments are needed to ensure the long-term viability of local government inSouth Africa.Third, local government cannot only rely on additional revenue resources toresolve the dilemma. Budget prioritisation and control is of great importance.Alternative methods and procedures for budget preparation must be developedand implemented. Sufficient information must be given to Council to enable themto make hard budget decisions and to later defend those decisions with theirvoters. The information should include the long-term socio-economic effects ofalternatives to the proposed budget items. Multi year budgets showing the longterm financial effect of a project is an absolute must.During the study the need for proper communication also came to the fore. Thereis a lack of effective and open communication between council, the media andthe ratepayers. More resources should be channelled to this important aspect oflocal government. It is necessary to inform and school the broad public on theresponsibilities and operations of local government. Properly informed, the publicwill over the longer term show more understanding when projects are deferred ortax levels are raised.
Year of publication: |
2004
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Authors: | Steyn, Wynand Petrus |
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