RATES POLICY FOR THE CITY OF JOHANNESBURG

1. RATES POLICY FOR THE CITY OF JOHANNESBURG Background on Valuations Roll process and compilation 12 October 2007

2. Introduction On 1 July 2008,Council will implement the Municipal Property Rates Act, that was approved by Parliament during 2005. Municipalities have a four year period to implement.

3. Introduction • Business as major contributor to City • 7,4% of all properties • 29,8% of land values • 46,1 % of current rates payable • Major nodes are the largest generators • 2% of City Area • 35% of current rates payable • Nodes are the most complex in terms of valuation process, technique, base information required and it can vary the most • Avoid approach that is time consuming in Appeals and reduce billing difficulties

4. The Process of Community Participation • Draft Rates Policy : Community Participation Sessions • Written comments may be submitted to Council until 31 October 2007.

5. The Process of Community Participation • Provisional Valuation Roll: open for inspection during February, March and April 2008 • Individual written objections may be submitted the Municipal Manager during this period.

6. The Process of Community Participation • Tariff setting: Council determines its tariff of charges for ensuing financial year during March of each year. • Tariffs open for written comment during April of each year. • Council to consider objections to tariffs during May of each year.

7. Key Changes ito New Legislation • There is no differentiation between land and improvement value. Rates will now be levied on the market value of the property; • Sectional Title properties are to be individually valued and rates levied on the market value of each individual sectional title unit • The first R15 000 of residential property value is not ratable. City to consider and amend this threshold in terms of market values of properties in Johannesburg – currently Johannesburg exempts properties with a land value less than R20 000.

8. Key Considerations • The Rates Policy is required to satisfy conflicting calls for rates relief- • Create an environment for local economic development; • Promote first time home ownership; • Provide relief to welfare related organisations; • Provide relief to the primary and secondary educational system; and • Provide short term relief to a property owner in respect of “market value property rating” where the growth in market value has outpaced the potential benefits of a reduction in the rate in the Rand.

9. Key Considerations • Source finance to support the ongoing municipal service delivery program of the City • Recognising that property rating is the only legally enforceable source of revenue to a municipal council • Recognising that the municipal property rate is a tax on the ownership of fixed property; and • Recognising the benefits of home ownership to senior citizens and the less well off members of the community

10. Usage of Revenue • Reliable source for service delivery • Most important basic revenue source – 22% revenue of Council • Municipal rates are set, collected and used locally – no national intervention • The revenue for rates is used for community halls/centres, parks, grass cutting, emergency services, clinics etc

11. Land Value and the Rate in the Rand • Over the corresponding period, the land value, being the tax base, and the annual rate in the Rand, were as follows:

12. Categorisation of Property • The Act requires that property be grouped according to category. • Categories may follow the permitted use of the property, which we refer to as the zoning of the property. • Property within a particular geographical area may also be considered as a category.

13. Categories of Property • Business , commercial and industrial; • residential property; • residential property with additional rights • municipal property : not rateable; • municipal property : rateable; • property owned by the State or an organ of state;

14. Categories of Property (contd) • farming land used for bona fide farming; • public service infrastructure; • property used for multiple purposes; • agricultural holdings used for agricultural purposes; • vacant land irrespective of zoning and • mining property.

15. Different rates tariffs Different rates tariffs will be levied on the different categories of property. However, there can only be one rate in the Rand per property category i.e. one tariff for business

16. Ratios per Category Assumed ratios: Residential used as base 1 Residential with consent 1:2 Business / industrial 1:3 Vacant land 1:4 Government 1:1,2 Public Worship Exempt Public Service Infrastructure Exempt Minister to publish regulations to regulate ratios and capping on rates increases

17. Assessment Rate Tariff (CIR) The rate in the Rand can only be determined after the Valuation Roll has been completed and the Council has considered its funding requirements for the ensuing financial year. This will be during March 2008. REVENUE NEUTRAL ON CURRENT RATES BASE As the total value of property increases and the required revenue remains constant = the cent in the rand tariff will decrease. This can only be determined when the draft valuation roll is available with market values for all properties.

18. Category of ownership • The policy will propose that a full rebate applies where the market value falls below the threshold (yet to be determined) and the property is zoned and used for residential purposes. (The prevailing threshold is R20 000 on land value only). • Many new properties will be included in the tax base as improvements (market value) will exceed the threshold

19. Further Rebates • The policy further proposes that a category of ownership be recognised for property owned by natural persons who are not pensioners but who have limited income (current indigent policy). • Criteria will have to be determined by Council i.e. the maximum income of the owner.

20. Pensioners 2 Categories of pensioners defined in the proposed policy: • Pensioners dependent on National Security Grant – 100% rebate • Pensioners who are not on National Security Grant but whose gross monthly income falls below threshold to be determined by Council, policy proposes R5000 – 75% rebate to be applied

21. Inner City and High Density Accommodation • The policy proposes that 40% rebate be allowed in the Inner City where property has been re-developed to allow for 80% residential and 20% commercial. • In addition, provision is made for a rebate where more than three dwelling units are erected on an erf, provided that these dwelling units are in the same building i.e. flats

22. Promotion of Development Objectives • Encourage Development of Land: • Remove sliding scale for properties larger than 10 000m² • Tariff applied to category of vacant land higher • Rate properties according to permitted use (zoning) • Bona Fide agricultural land to retain benefit of 55% rebate • Special Rating Areas: • Provision is made of the determination of special areas where different rating may be applied • To be motivated on individual basis indicating need, tariffs, benefit and financial implications. • Need to develop criteria to be applied i.e. majority of land owners to agree

23. Social Support Organisations • Provision is also made in the policy for rebates to CBO’s and NGO’s that are recognised in terms of Section 32 of the Income Tax Act and who provide the type of services referred to in Items 1, 2 and 4 of Part 1 of the ninth schedule to that Act. • These are • Welfare and Humanitarian Services • Health Care Services • Educational and Development Services

24. Private Sports Clubs • Subject to successful application to the Council, a private sports club may be allowed a rebate up to 20% on its current monthly rates • Depends on contribution to social development of citizens and the availability of access by public

25. Property owned by Religious Bodies • As at present, no rates will be levied on property owned by religious bodies. However, the property has to be registered in the name of the religious community and be used primarily as a place of public worship. • This relief from rates is extended to the official residence owned by the religious body and occupied by the person who officiates at services at that place of worship

26. Schools • The policy proposes that the rebate in respect of all primary and secondary schools be accorded the same level of rebate. The proposed rebate is 50% in relation the business tariff. • In the case of the private schools that are presently exempted from assessment rating, a three years phasing in period will apply in the levying of rates with no rates being levied in the first year.

27. Phasing in period • The Policy makes provision for a phasing in period where a potential increase in the rates is in excess of a percentage growth over the prevailing rates. The policy is open to proposals regarding the level of increase above which phasing in is warranted. • Because the lifespan of the valuation roll is limited to four years, the phasing in has to be completed within four years

28. Newly Rateable Property • Where a property is not being levied rates such property is deemed to be “newly rateable”. Rates on such property will be phased in over a three years period e.g. private schools that are current exempt i.t.o Ordinance

29. Challenges • No clarity with regard to regulations from National Govt in relation to: • the ratios to be implemented between the various categories and • capping of maximum increase in the rates. • Availability of data to do valuations i.e. public service infrastructure and sectional title • Although the total revenue requirement will remain revenue neutral, there will be a shift in incidence between rate payers and categories, especially where the improved value relative to the land value is higher that the reduction in the rand. The rates burden will also shift between various categories, based on the ratios to be prescribed

30. Way Forward • Community participation into the Draft Rates Policy – intense media campaign to follow to make public aware of the changes and the implementation of new legislation • Awareness and education campaign around the reasons property owners pay rates to ensure those paying for the first time have an understanding of need • Community Participation in confirming the property information recorded in the Provisional Valuation Roll • Community Participation in commenting on the proposed new tariffs

31. Conclusion Property rates are the key source of local government revenue and are enshrined as such in the Constitution (Section 229). Have to be used to fulfil developmental needs of the municipality.

32. Written Comments On Draft Rates PolicyDue 31 October 2007 City Manager PO Box 1450 Johannesburg 2000 RE: COMMENTS ON RATES POLICY Fax: 011 381 9642 Email: ratespolicy@joburg.org.za www.joburg.org.za/rates