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Property Rates Hike on Cards for Johannesburg

4 January 2007

Johannesburg's city council has confirmed that residents could see significant property rates increases next year when the new rates scale - linked to property values - is implemented. The increases, which have not yet been quantified, were approved by the council last month and come in the wake of hotly contested changes to the national rating system.

The new Johannesburg rates system is part of the national implementation of a standardised rating system - the most extensive change to the taxation system of local government in decades.

Erika Naude, director of rates and taxes for Johannesburg's finance and economic development department, claimed it was difficult to provide an accurate evaluation since the draft valuation policy was still being considered.

She said as the new valuation would be based on market values, it was likely that most properties would see an increase in rates.

Previously, rates were based on the value of the land only. "Now rates payable will include improvements to the land, bringing them in line with market value - so obviously there will be a huge increase in that," she said.

City council spokesman Virgil James confirmed yesterday that while the "rate in rand" tariff - about 12c per rand value of the property at present - could even decline, the property values on which rates were calculated would probably increase as the value of the land and improvements would be considered.

"Cape Town has been billing residents on the land value and improvements for some time so they are less likely to feel the changes, but most municipalities - Johannesburg included - have billed only on land value."

Until now, council officials have not explicitly acknowledged that a rate increase is a likely consequence of the new system. However, homeowners have long feared the changes would herald increases since the vast majority of Johannesburg's properties are probably undervalued in terms of the existing rating system, particularly given recent increases in property values.

Both government and councils around the country have reassured homeowners that large-scale increases are unlikely.

But without spelling out a specific "rate in the rand" figure - which is being left to the discretion of municipalities - the likelihood is that homeowners will remain fearful.

The change created a political hot potato for city managers around the country.

On December 7 last year, Johannesburg city council nevertheless approved July 2008 for the implementation of the new system.

James stated the new rates policy, which has to be developed by every municipality, cannot be implemented without public consultation.

"Not only the public, but government too, have to review the new policy to ensure that rates will not be unrealistically high. It would not make sense to increase rates to a level that homeowners generally could not afford.

"In exceptional cases, where there is a drastic change, consultation will take place and in some cases the increases will be phased in over time. "

"The city does not want rates to be increased so high that it scares people away."

"We hope to have the draft rates policy document completed by March. It will outline the broad parameters of the rates policy and will be based on estimates gathered from various agencies such as the Deeds Office and bank estimates."

"It's very labour intensive to individually inspect every property at this stage, and that will come later in the process - before the evaluation roll is drawn up."

Naude expressed that from June until the end of November this year there would be "massive public participation around the draft rates policy".

"We hope to have the draft evaluation roll up by January next year. It will list the value of individual properties which homeowners will be able to view. This will give the public a formal route of objection on individual land evaluations. "
"It would be unfair and incorrect to speculate on what it will cost ratepayers before the city has even determined the tax base and tax rate," he said.

James said the act stated that all properties must be evaluated, barring certain exclusions, and that this would lead to a bigger tax base and a more equitable means of raising income.

"With more people contributing to the tax base, long-time rate- payers may see their rates coming down because there are more contributors," he said.

James said the evaluation would not just look at the value of the property, but the value of improvements made to the property. Residents living in townhouses, for example, would now have to contribute.

Government properties not previously taxed will also be included.

"The act requires taxing of commercial farms, industrial and government land, as well as businesses and town houses."

Provisions will be made for exemptions regarding pensioners and nonprofit organisations such as churches but they would not be automat-ically excluded.

"Each request will be looked at on a case-by-case basis," he said.

Johannesburg derives 24,8% of its income from electricity, 20,7% from water, 20,7% from property rates, 20% from operating and capital grants, 3% from refuse removal and 1,4% from fines and licences.

Each year its property rates and tariffs are reviewed during its budgeting and integrated development planning processes.

Source: BusinessDay