Representing Business Unity South Africa (BUSA) and Chambers of Commerce and Industry (CHAMSA)
Memorandum of Comment to the Parliamentary Portfolio Committee on Finance

1. Introduction

BUSA is a confederation of chambers of commerce and industry (CHAMSA), professional associations, corporate associations and unisectoral organisations. It represents South African business on macro-economic issues that affect it at the national and international levels. BUSA's function is to ensure that organised business plays a constructive role in the country's economic growth, development and transformation and thereby create an environment in which businesses of all sizes and in ali sectors can thrive, expand and be competitive. BUSA also represents business' interests in the National Economic Development and Labour Council (NEDLAC). BUSA welcomes the opportunity to make comment on the Municipal Fiscal Powers and Functions Bill.

2. General Comment

2.1 The purpose of the Bill, as set out in section 2, is to give substance to the constitutional right of third tier government to impose surcharges on service fees and to impose other forms of taxes/levies - conditional to authorisation from the Minister of Finance. Thus by way of regulatory powers the Minister can ensure that the economic activity within a local authority is not 'prejudiced' by any fiscal measures introduced by a third tier government structure. In some respects the proposed legislation strives to strike a necessary balance between democratic government and efficiency. After all, affordable and efficient service delivery is a common requirement of all citizens in a local government area, whether they are regarded as voters or as customers.

2.2 While acknowledging the right of municipal structures to impose levies and surcharges, it must be recognized that it introduces a taxation mechanism that although under the constraining hand of the Minister of Finance does give rise to an additional tax burden. BUSA has already noted in an earlier submission to the Portfolio Committee on Finance (2007/08 Budget Hearings) that the tax to GDP ratio has been moving further from the unofficial target figure of 25%. In 2006/07 the ratio stood at 27, 9%. If an element .of current tax policy is one of lowering tax rates in order to place South Africa in a more favourable competitive position as an investment destination, then municipal tax/levy/surcharge measures must surely be offset by a reduction in the current corporate tax rates. A minimum requirement would be that any additional local tax/levy or surcharge should be income tax deductible (as was indeed the case with the previous RSC levy).

3. Specific Comment

3.1 Consultation

Chapter 2, section 4 requires (must) the Minister to consult with the Minister of Local Government, organised local government and the Fiscal and Financial Commission. It also allows (may) him to consult with any other organ of state or interested party. The consultation provisions of section 5 (h) are perfunctory in nature. Except for a provision in section 9 (3) relating to annual budget preparation, the legislation provides for no satisfactory consultation mechanism with stakeholders likely to be affected by any tax/levy measures. BUSA would submit that, as with municipal budgets and property rates, provision is set out for stakeholders (including business) to be drawn into the consultative process. If nothing else, it would accommodate the objective of transparency.

3.2 Dispute Resolution

BUSA believes that an appropriate mechanism be incorporated (either in the Act itself or in the accompanying regulations) to accommodate dispute resolution procedures. From the experience of business in meeting their previous RSC / JSB levy obligations, disputes will inevitably arise.

3.3 Local Government Capacity

A tax system stands or falls by its ability to effectively administer and collect taxes that are due. Again drawing from experience, BUSA must express its .concern as to fragile capacity in many municipality structures, the consequence of which casts doubt on their ability to collect taxes efficiently and equitably. This together with other managerial weaknesses, raises the question as to whether such shortcomings provide justification for certain municipalities to be granted exemption from compliance to standards and norms {section 9 (1) (b)}. BUSA has misgivings over providing for such exemptions. It surely undermines the very system of local government and is in sharp contrast to the governance objectives of the Municipal Finance Management Act.

3.4 Local Government Overlap

In circumstances where potential levy-payers are subject to two municipalities, it is unclear as to what payment obligations will be determined. It would surely be unsatisfactory for both local and district municipalities to be authorised to levy/tax the same people. For example, where a District provides no services to residents in an area adjacent to a local municipality, it is clearly not possible to impose a surcharge on the basic tariff.

3.5 Application Authorisation (section 5)

BUSA believes that the application authorisation requirements are suitably detailed. It would wish that such levy funds would be used specifically for infrastructure provision, upgrading and maintenance as was the original