Local Government: Property Rates Bill [B19-2003]
Submission to the Portfolio Committee on Provincial and Local Government
5 May 2003


The South African Council of Churches endorses the principles underlying the Property Rates Bill, but proposes changes to the legislation to:
Raise the residential exclusion threshold;
Require local authorities to consider and alleviate the impact of rates on all Public Benefit Organisations (PBOs);
Identify property used for public benefit activities as a category of property that should be considered for differential rates;
Provide a general exemption for places of public worship;
Establish a one-year grace period at the commencement of the legislation to allow organisations that currently enjoy a rates concession to prepare, file and receive a response on an application for future concessions;
Address problems associated with using a market-based valuation method for valuing non-commercial institutions by requiring valuers to take into consideration any restrictions on the use or development of property (e.g., zoning restrictions or national monument status); and
Identify a cheap and accessible mechanism to enable organisations to appeal against what they see as inconsistent or arbitrary application of a municipal rating policy.


The South African Council of Churches (SACC) is the facilitating body for a fellowship of 24 Christian churches, together with one observer-member and associated para-church organisations. Founded in 1968, the SACC includes among its members Protestant, Catholic, African Independent, and Pentecostal churches, representing the majority of Christians in South Africa. SACC members are committed to expressing jointly, through proclamation and programmes, the united witness of the church in South Africa, especially in matters of national debate.

Since 2000, the SACC Parliamentary Office has facilitated a consultative process among SACC member denominations to identify and address the implications for religious bodies of proposed changes to the tax system affecting public benefit organisations. This has resulted in the formation of an ad hoc Religious Tax Policy Working Group. More recently, we have worked to broaden this discussion to involve Christian churches that are not SACC members, as well as parallel structures in other faith communities. Representatives of the South African Jewish Board of Deputies and Jewish Social Services took part in a workshop held by the Working Group in Johannesburg in March 2003 to discuss the implications of the draft Property Rates Bill and to develop this document. In the past, the Working Group has also been in contact with the Zion Christian Church and with Hindu and Muslim organisations.

Adv. Allan Schwarer, chair of the Southern Africa Catholic Bishops’ Conference Legal Policy Committee, and Atty. Henry Bennett, Deputy Registrar of the Church of the Province of South Africa, have made particularly substantial contributions to the development of the current submission.

Support for Principles Underlying the Property Rates Bill

The South African Council of Churches (SACC) and its partners in the Religious Tax Policy Working Group acknowledge the government’s constitutional obligation to devolve powers to assess property rates onto the local sphere of government. In this context we welcome the Local Government: Property Rates Bill (hereafter "the Bill") and appreciate the government’s efforts to promote an open and detailed national debate on this important legislation.

We endorse many of the provisions of the Bill, and support, in particular, provisions designed to ensure that municipal rates policies:
treat all persons liable for rates equitably;
consider, and take steps to minimise, the burden of rates on poor households;
exclude from valuation a basic amount of the improved value of residential property;
take into account the effect of rates on "welfare and charitable organisations";
are subject to an extensive and well defined process of public consultation;
exempt public service infrastructure, public conservation and coastal areas; and
phase in rates on newly rateable properties over a period of years.
We further support the creation of valuation appeals boards to consider and rule on objections to property valuations.

Current Exemption of Property Used for Religious Purposes

We are nonetheless concerned about the potential impact of the legislation on public benefit organisations, in general, and religious institutions, in particular. Many public benefit organisations – including schools and places of worship – have traditionally enjoyed an exemption from local property rates in many jurisdictions. For example, a recent survey of Central and Eastern European nations found that, with the exception of Estonia, all exempted at least some nongovernmental organisations from property taxes, and many provided specific exemptions for property owned or used by churches and religious societies. In India, religious institutions have typically been exempt from taxes, including property taxes (although the provisions of property tax legislation are currently under review in some areas).

Similarly, in South Africa the provincial ordinances that currently govern municipal rating policy provide exemptions for a range of public benefit organisations. Although the scope of these exemptions varies, property normally used for religious purposes is presently exempt from rates in all parts of the country. In all provinces except the Free State, the exemption extends to the residences of ministers of religion, provided the religious institution concerned owns the residence.

A New Ratings Policy Framework for a Democratic South Africa

Whilst section 229(1)(a) of the Constitution empowers municipalities to assess rates on property, section 229(2)(b) permits national legislation to regulate the scope of those powers. The precise scope of Parliament’s regulatory power remains unclear. It should be noted, however, that the municipal competencies set out in section 229(1)(a) are not shared with the provinces and are therefore not listed in Schedule 5. Hence, the limitations on national legislative authority with respect to Schedule 5 functions, set out in detail in section 44(2) of the Constitution, do not apply in this situation. Consequently, Parliament’s authority to exercise its regulatory functions in a prescriptive manner – as opposed to a merely enabling manner – remain open to debate.

In general, however, we believe that an enabling approach, rather than a prescriptive approach, is more in keeping with the spirit of the Constitution and the division of powers defined therein. Having said that, we also believe that the national government has an obligation to establish parameters on the exercise of local government powers that promote harmony with national development goals – not only with respect to economic development, but also with respect to human development in a broad and holistic sense.

This does not constitute a simplistic argument for the status quo. Undoubtedly, the varied provincial ordinances currently governing property rates must be reconciled to produce a single national framework that better reflects the egalitarian principles that inform our Constitution. This requires the formulation of new parameters for property rating that enhance the progressive and redistributive impact of rates. In this context, it may not be desirable for national legislation to perpetuate certain existing rates exemptions. For example, we accept that it may in some circumstances be appropriate to expect religious institutions and other public benefit organisations to make some contribution to financing local government, where they are financially able to do so.

At the same time, we believe that fully exposing religious institutions and other public benefit organisations to rates would:
place an unsustainable financial burden on many religious bodies, especially smaller and/or poorer congregations;
impede the provision of essential community services;
run counter to recent developments in national economic policy which aim to create a fiscal environment more conducive to the activities of public benefit organisations;
be difficult to administer fairly, given the inherent practical difficulties in assessing the value of property used for religious purposes;
undermine the national campaign for moral regeneration.

As a result, we raise specific concerns about:
The exclusion threshold for residential property (paragraph 13)
The extent to which the Bill conceptualises and gives effect to the requirement incumbent on local authorities to consider the impact of rates on "welfare and charitable organisations" (paragraphs 14-23);
The rating of places of public worship (paragraphs 24-26);
The process for terminating an existing exemption from rates (paragraphs 27-29);
The practical difficulties of assessing fair rates on religious institutions (paragraphs 30-35); and
The mechanism to appeal against the arbitrary or inconsistent application of a municipal rates policy (paragraphs 36-37).

Residential Exclusion Threshold

We support, in principle, the notion of excluding from assessment a basic component of the improved value of residential property. This represents an important way of reducing the impact of rates on poorer and working class households. However, we believe that the current threshold – set as "at least the first R15 000 of the value of all residential property" [sec. 15(2)(h)] – is too low. We understand that many municipalities already set considerably higher exclusion thresholds. We propose that the exclusion threshold should be no lower than the amount of the standard housing subsidy.

Alleviating the Impact of Rates on Public Benefit Organisations

Section 3(2)(e) of the Bill requires that a municipal rates policy must "take into account the effect of rates on welfare and charitable organisations". Whilst we endorse the principle underlying this provision, we believe that the current wording is flawed because:
It employs archaic language; and
It is inconsistent with national economic policy.

In addition, we are concerned that the Bill does nothing further to give effect to this requirement. Municipal authorities should be obliged not only to take into account the effect of rates on such organisations, but also to alleviate this burden, just as they are required to do in respect of poor individuals. The obligation on municipalities to take into account the effect of rates on welfare and charitable organisations is also not reflected in section 8(3), which lists various categories of rateable property for which differential rates may be established. Although the list in section 8(3) is not intended to be exhaustive, we fear that it may be read as such by some officials.

Archaic Language

We contend that the wording of Section 3(2)(e) is outdated and should be brought into line with other tax legislation, in particular the Income Tax Act. The Income Tax Act makes provision for relief from taxation for "public benefit organisations" rather than for "welfare and charitable organisations". The term "welfare and charitable organisation" is not precisely defined, either in this Bill or in other tax legislation. The remarks of the Commission of Inquiry into Certain Aspects of the Tax Structure of South Africa (a.k.a. the Katz Commission) concerning the use of the "medieval" word "charitable" in the Income Tax Act are equally apposite in this instance: "It is self-evident that such terminology is a product of its time, and no longer reflects a contemporary understanding of development, altruism, or public benefit." [9th Report (1999), para 3.1.1]

Consistency with National Economic Policy

In keeping with the requirements of section 229(2)(a) of the Constitution, section 15(1)(a) of the Bill states that "A municipality may not exercise its power to levy rates on property in a way that would materially and unreasonably prejudice national economic policies". It is our contention that government has established clear national economic policy with respect to the beneficial tax treatment of public benefit organisations. This was articulated in the Ninth Report of the Commission of Inquiry into Certain Aspects of the Tax Structure of South Africa (1999), which concluded:

… [T]here is a broad consensus in the international community regarding the justification for such beneficial treatment [of non-profit organisations]. Factors which are most frequently cited include the following:
NPOs are seen to be a relatively cost-effective means of delivering social and developmental services in a manner which relieves the financial burden which otherwise falls upon the State;
as civil society initiatives, NPOs are seen to promote important values in society, including voluntarism, self-responsibility, and participative democracy; and
in societies such as South Africa where there exist gross disparities of income and wealth, NPOs represent an important mechanism for encouraging philanthropy and promoting greater equity and redistributive policies. (para 2.4)

This perspective has guided government’s subsequent tax reforms, as indicated in the 2000 Budget Review:

Non-profit organisations play a vital role in promoting development and extending democracy. Recognising this, the Income Tax Act grants tax-exempt status to approved non-profit organisations and allows donations to some bodies to be deducted from taxable income, subject to prescribed limits. Government accepts that the current provisions do not acknowledge the changed role of these organisations in South Africa. … Having considered the report by the Katz Commission and the preliminary findings of the Portfolio Committee on Finance, as well as the information obtained from foreign jurisdictions, it is proposed that … [a] comprehensive list of acceptable public benefit activities, which must include the activities of the majority of non-profit organisations in the Republic, should be developed and included in the Act. (82-3)

Significantly, the Budget Review also added: "Similar provisions in other revenue laws may have to be changed" in order to give consistent effect to this policy.

The Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000), codified this emerging policy, abolishing the previous exemption for "religious, charitable and educational institutions" and replacing it with an exemption for a generic and more inclusive category of "public benefit organisations". The very term, "public benefit organisation", highlights the socially desirable nature of these bodies and illustrates the state’s interest in facilitating their work. The explanatory memorandum that accompanied the Bill indicated that one of the policy objectives of the new tax system was to rectify the "somewhat fragmented" way in which such organisations had been dealt with in the past and to introduce "more organised and systematic" tax arrangements to enable their activities. Consequently, the legislation also extended the tax exemption for public benefit organisations to a range of ancillary taxes and levies, including transfer duties, estate duties, stamp duties, the Skills Development Levy, and the donations tax provisions of the Income Tax Act.

Clearly, then, the state has recognised a compelling national interest in creating a hospitable fiscal climate in which public benefit organisations can thrive. This is linked both to the role of such organisations in augmenting the state’s capacity to deliver services and also to a recognition of the sector’s role in enhancing open and participatory democracy. In addition, the state has acknowledged a related interest in ensuring that tax policies intended to achieve that objective are applied consistently. The national policies formulated to protect the state’s interests in the national sphere should also be enforced in the local sphere. Failure to do so would reintroduce the uncertain and inconsistent tax environment that the Taxation Laws Amendment Act, 2000, sought to eliminate.

Section 15(1)(a) provides a firm basis from which to enforce this national economic policy; however, the implications of this should be more clearly spelled out, either elsewhere in the Bill or in the associated regulations. [Section 3(3) provides for the establishment of a national framework for rates policy in regulations. This might be an appropriate place to articulate in more detail the implications of national economic policy in this regard.]

Proposed Remedy

To address these concerns, we propose:

Section 3(2)(e) be amended to read: "take into account the effect of rates on public benefit organisations, in the case of property used by such organisations, and include appropriate measures to alleviate the rates burden on such organisations".
An additional definition be inserted in section 1: "‘public benefit organisation’ means an organisation that is recognised by the Commissioner of Revenue as a tax-exempt public benefit organisation in terms of section 10(1)(cN) of the Income Tax Act, 1962 (Act No. 58 of 1962) or any institution, board or body that has as its sole or principle object the carrying on of any public benefit activity contemplated in section 30 of that Act and that is similarly recognised as exempt from tax in terms of section 10(1)(cA)(i) of that Act."
In order to achieve consistency with national economic policy, the implications of this requirement should be spelled out in greater detail by linking it with the listing of categories eligible for differential rating in section 8(3) of the Bill. We therefore propose that section 8(3) be amended to include, as a new item (cA), "
properties used solely for public benefit activities as defined by section 30(1) of the Income Tax Act, 1962 (Act No. 58 of 1962)".
These changes would encourage municipalities to give explicit consideration to the needs and circumstances of public benefit organisations (as section 3(2)(e) intends). They would also give such organisations clear opportunities to make a case for rate rebates or exemption to municipal authorities. Furthermore, the emphasis on use (as opposed to ownership) would preclude discrimination against those public benefit organisations that do not own property.

As Public Benefit Organisations are clearly defined and regulated by the Income Tax Act, the linking of property rates concessions to PBO status has the added advantage of reducing the potential for abuse or arbitrary application of such concessions.

Places of Public Worship

Although we believe, in general, that public benefit organisations should receive consistent treatment under property rating policies, we feel that a case can be made for special treatment for property normally used as places of public worship (as distinct from other faith-based organisations and service agencies). Places of worship are unique in that they are sources of spiritual guidance and development for communities. In many instances, they also provide other vital resources to the community, serving as venues for community meetings, education programmes, etc.

We have heard concerns expressed by some members of the Portfolio Committee about a small number of churches that appear to acquire excessive wealth while returning little of value to the community. Whilst we do not deny that such congregations may exist, we believe that the vast majority of congregations do not fall into this category; it is therefore inappropriate to legislate on the basis of this unusual minority. In fact, a great many congregations, especially those of independent churches, have very few assets apart from their place of worship (if they even own that). As an additional safeguard against the abuse of such an exemption, congregations could also be required to be recognised by the Receiver of Revenue as public benefit organisations. This would make them subject to restrictions in the Income Tax Act on excessive remuneration of employees, income from trading, etc.

We therefore propose that section 15(2) be amended by the inclusion of a new subparagraph (gA) to read: "property owned by a religious body or organisation that is a public benefit organisation and normally used by it as a place of assembly for public worship or other gatherings or activities in furtherance of the spiritual objectives thereof, whether or not such property is at any time during the financial year also used for any other purpose".

Termination of Existing Exemptions

The Bill provides for existing valuation rolls to be used as the basis for levying rates until new ones can be drawn up (section 75). However, it is not clear whether any current exemptions, in terms of the old provincial ordinances, will remain in effect. Furthermore, although provision is made for the phasing in of rates on newly rateable property, there is no explicit grace period during which a previously exempt organisation may apply to the relevant authority for an exemption or a grant-in-aid. The Bill appears to make any owner who does not secure an exemption or a grant-in-aid prior to the effective date of the legislation liable to pay rates until such time as the municipality offers relief from rates.

We therefore propose the insertion of a clause stipulating that any rebate or remission of rates in existence at the time of the Act’s promulgation will remain in effect until such time as that property is deemed to be rateable and the owner has been notified of this in writing. This letter should also explain the process by which the recipient can appeal the ruling. Thereafter, the previous exemption or remission of rates should continue to apply for a further year to enable the affected organisation to review its options and to make any necessary representations to the municipal authority concerned.

This could be accomplished by extending the schedule for the phasing in of rates, described in section 18, to four years, such that in the first year no rate is assessed. This would be consistent with the approach taken by the South African Revenue Service in applying the recent amendments to the Income Tax Act, 1962, affecting public benefit organisations. SARS has taken the view that existing exemptions will continue to apply unless they are withdrawn in writing by the Commissioner of Revenue. (See, for example, SARS’ written response to public submissions on the Taxation Laws Amendment Bill, 2002, dated 14 June 2002.)

Assessing the Rateable Value of Property Used by Religious Institutions

Section 38 stipulates that property must be valued in accordance with "generally recognised valuation practices, methods and standards". Subsection 38(3) goes on to say:

If the available market related data of any category of rateable property is not sufficient for the proper application of subsections (1) and (2), such property may be valued in accordance with any mass valuation system or technique as may be approved by the municipality concerned and as may be appropriate in the circumstances, including a valuation system or technique based on predetermined bands of property value and the designation of properties to one of those bands on the basis of minimal market related data.

However, the Bill provides little guidance with respect to an appropriate system of valuation for categories of property on which there is likely to be limited market related data. In the case of places of worship (churches, synagogues, mosques and temples), accurate valuation is particularly difficult because such properties are not often bought and sold. Where such sales do occur, the property is often undergoing a change of use, which will affect its marketable value. It is inappropriate to assess rates on the potential commercial value of property that has been and will continue to be used for religious purposes. Consequently, neither of the two valuation strategies envisioned in the Bill (use of comparable market data or a mass valuation system) is likely to be appropriate.

Valuation is further complicated where a property is occupied by a structure that has been declared a national monument, thus greatly restricting the scope for alterations to the building. This is often the situation for older, urban places of worship.

Section 39(1) also requires that the improved value of the property be calculated on the basis of "the amount that the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer". We are concerned that such a strictly commercial approach may dramatically inflate the value of property used for non-commercial (and non-profit) purposes by religious institutions and other public benefit organisations. This could, in turn, expose them to unsustainable rates bills, compelling them to curtail, move or even cease their public benefit activities.

Section 39(2) requires the value of a property to reflect any license, privilege or unauthorised (but lawful) improvement. It does not, however, make any similar provision concerning any restriction on the use of such property or the alteration of any existing structure thereon (e.g., zoning restrictions or preservation orders). Although we are informed that it is common practice in the industry to take into account such restrictions when calculating the value of property, we believe that this requirement should also be entrenched in law.

While this may resolve some of the concerns raised by religious institutions, it would not necessarily assist other PBOs who are likely to make use of land and premises that are zoned for general commercial use.

Appeals Against the Arbitrary Application of a Municipal Rates Policy

We note that, in the past, policies relating to the application and reduction of rates have been inconsistently applied to public benefit organisations. Whilst we appreciate that the general principles set out in section 3 of the Bill are intended to diminish such inconsistency, both within and across municipalities, we fear that it will not eliminate it altogether.

Currently, an organisation that believes it has not been dealt with fairly by a municipality has no recourse apart from bringing an action in a High Court. This is an expensive and inaccessible remedy, which is likely to be out of the reach of smaller or poorer organisations. We therefore propose that the jurisdiction of the valuation appeal boards, to be established in terms of the Bill, be expanded to permit them to hear and to rule on such disputes. Valuation appeals boards should offer a lower cost, intermediary option for appeal, without limiting the right of further appeal to a High Court.