The submission provides SALGA’s commentary and proposals on Amendments to the Municipal Fiscal Powers and Functions Bill 2007.




1.         Constitutional Imperatives


1.1               Section 229 (1) of the Constitution empowers municipalities to impose municipal surcharges on fees for services provided by them or on their behalf.


1.2               Municipalities may also, if authorised by national legislation, impose other taxes, levies and duties appropriate to local government or to a category of local government into which that municipality falls, but excluding an income tax, a value added tax, general sales tax and customs duties.


1.3               The constitutional powers given to municipalities to impose municipal surcharges on fees for services provided by them or on their behalf may be regulated by national legislation.


1.4               The national legislation which either authorise “other taxes, levies and duties appropriate to local government” or regulate a municipality’s right to impose rates on property and surcharges on fees for services provided, may be enacted only after organised local government and the Financial and Fiscal Commission have been consulted.




2.         Current Practice

As is specifically provided for by the constitution, municipalities have been engaging in the practice of imposing municipal surcharges on fees for services provided by them or on their behalf. In addition, prior to 1 July 2006, metropolitan and district municipalities were also benefiting from the Regional Service Councils and Joined Service Board levies. This practice has, since the Minister of Finance’s 2005 Budget Speech announcement, been stopped due to economic efficiency and administrative feasibility. To ensure that those affected municipalities (districts and metros) continue to meet their expenditure obligations, a grant from the national fiscus through the Division of Revenue Act has since 1 July 2006 replaced these levies.




1.         Definitions and interpretation

“Municipal base tariff” is defined as “the fees necessary to cover the actual cost associated with rendering:-

a.       Municipal service, and includes a bulk purchasing cost in respect of water and electricity reticulations services, and other municipal services,

b.      Overhead, operation and maintenance cost,

c.       Capital cost,

d.       A Reasonable rate of return, if authorised by a regulator of or the minister responsible for that municipal service,

e.       Administration and regulatory cost”.


With specific reference to sub-clause (e) of the definition it might have the implication that a service will carry costs which is not based on the actual delivery of a service or municipalities will not use the same costing system and principals to calculate this. The calculation of this particular cost can thus vary from municipality to municipality and as a direct consequence might create inconsistency between the municipalities.


SALGA recommends: - To ensure consistency “administration and regulatory” costs should be defined in terms of shared services and actual service delivery costs. Furthermore the costing system should be based on ABC costing.


2.         Objects of the Act


The bill primarily deals with the following:-

·         the authorisation of municipal taxes by the Minister;

·         the application process for authorisation;

·         the Regulations regarding imposition and administration of municipal taxes;

·         the collection of municipal taxes;

·         norms and standards;

·         obligations of a municipality in respect of municipal surcharges;

·         Development of Regulations;

·         amendments to the act; and

·         Transitional arrangements after promulgation.


However, under clause 2 (d) of the objects of the Act, it is said that the bill provides for “an appropriate division of fiscal powers and functions where two municipalities have the same fiscal powers and functions with regard to the same area in accordance with section 229 (3) of the constitution”. When considering the substance of the bill, as outlined above, it is clear that this is not an accurate reflection of the contents of the actual bill.


SALGA Recommends: - The inclusion of clause 2(d) creates a wrongful impression that this particular area is dealt with in the bill, which when one considers the contents of bill is not the case. To avoid this wrongful impression it is our opinion that clause 2 (d) should be deleted from the bill.


3.         Application of Act

This bill, when enacted, will be applicable to and regulate municipal surcharges and municipal taxes referred to in Section 229 of the Constitution, other than rates on property regulated in terms of the Municipal Property Rates Act, Act no 6 of 2004. It is critical to take cognisance of and recognise the fact that municipal user charges, which are also critical components of municipal fiscal powers and functions, are regulated under the Municipal Systems Act, Act no 32 of 2000 and the Municipal Finance Management Act, Act no 56 of 2003.


SALGA Recommends: - In order to provide absolute “predictability, certainty and transparency in respect of municipal fiscal powers and functions”, as sought by the enactment of this legislation, explicit provision, by means of an additional clause, should be made that the act will not be applicable to municipal user charges which are already regulated under the Municipal Systems and Municipal Finance Management Acts.


4.         Application for Authorisation

Clause 5 of the bill makes provisions for a set of requirements or areas that need to be satisfied by a municipality, a group of municipalities or organised local government in an application for authorisation to levy a municipal tax. This set of requirements is very comprehensive, but in the same breath very prescriptive and onerous to comply with. In addition excessive costs may be associated with obtaining/ascertaining all the relevant technical data necessary for making an application for authorisation.


SALGA Recommends: - The recommendation is not necessarily an amendment to clause 5, but instead drawing attention to the cost as well as compliance implications of this provision. Consideration should be given to, post enactment of the bill; provide for implementation support to municipalities and/or groups of municipalities to enable them to comply with this particular clause of the bill.


5.         Regulations regarding imposition and Administration of Municipal Tax


Clauses 6 (d) (ii) and (iii) provide that the regulations may “in respect of a specific purpose tax, limit the purpose for which revenue derived from the collection of the municipal tax may be utilised” and the regulations may “specify that a percentage of the revenue derived from the collection of the specific purpose tax must be utilised for a specific purpose”.


SALGA recommends: - The objects of the bill are, in line with the provisions of Section 229 (1) (b), to regulate the exercise by municipalities of their power to impose municipal surcharges and regulate the exercise of their power to impose taxes, levies and duties. If so, it is our view that clauses 6 (d) (ii) and (iii) of the bill encroach upon a municipality’s constitutional autonomy to determine its budget and / or spending, which is, as indicated above, beyond the intended regulation of a municipality’s power to impose or raise municipal taxes. It is our opinion that clauses 6 (d) (ii) and (iii) should be deleted.



National Treasury’s assessment is that “there may be financial implications for those municipalities where existing surcharges raised are excessive and will need to be reduced on implementation of the norms and standards for surcharges”.  It would be interesting to ascertain whether during the development of the policy framework with regard to the regulation envisaged National Treasury has conducted any research on the actual financial impact on municipalities.


The concerns around costs implications for municipalities with making the application for authorisation of a municipal tax is already dealt with under paragraph C (4) above, but SALGA would appreciate some clarity from National Treasury as to the detailed envisaged costs relating to this onerous and prescriptive process.





As required by Section 229 of the Constitution, organised local government should be consulted when national legislation is envisaged to regulate the exercise of a municipality’s power to impose surcharges on fees for services provided by them or on their behalf and regulate the exercise of their power to impose taxes, levies and duties. It is confirmed that National Treasury embarked on a consultation process, at a technical (officials) level, which included a written invitation for comments from SALGA, as well as a workshop with SALGA and other stakeholders (including the Financial and Fiscal Commission).


SALGA’s written response to the National Treasury invite for comments placed on record that the comments, given the timeframes within which they were requested, have not gone through a SALGA political mandating process and as such should not be construed as having consulted with SALGA. It was further emphasised that for purposes of consultation SALGA has on numerous occasions expressed the view that until SALGA political principals are duly presented with a document of this nature, either in a properly constituted intergovernmental relations structure or to the Chairperson of SALGA or his duly delegated nominee, SALGA has not been consulted. A proposal was made for the bill to be tabled at the Local Government Technical MinMec followed by the Local Government MinMec, in August 2006 and September 2006 respectfully. It is our view that National Treasury should perhaps shed some light on the political consultation followed with SALGA.



In conclusion, SALGA believes that the bill will indeed give rise to more “predictability and certainty in respect of municipal fiscal powers and functions”. However, the recommendations proposed above are firstly, to promote the best interest of municipalities and secondly, to ensure compliance with the intent and terms of the relevant provisions of the Constitution.