If you are a property owner, whether it be a private residence or a business, it is very likely that you will soon be paying more property tax on that property. A lot more. The new Municipal Property Rates Act (MPRA) comes into effect soon and this act will have far-reaching consequences.

According to an expert, Mr. Wellies Welthagen, who was brought to Louis Trichardt on Wednesday, 19 March by the Soutpansberg Chamber of Commerce, the current valuation roll is outdated and has not kept pace with the rise in property values. The properties have also not been taxed on the improvements made by owners, such as houses, outbuildings, offices and/or other improvements. Depending on a number of factors, such as current market value, the extent of improvements, the taxation rate, exemptions, the kind of property (residential or business), previous historical imbalances that existed, and so forth, each property owner can henceforth expect a substantial increase in property tax.

Property rates and taxes are levied by a municipality to provide funding for establishing and maintaining infrastructure in a town, as well as for service delivery. These services are divided into three categories: trade services, economical services and rates services. Trade services are water and electricity supply. These services are rendered to show a surplus, as the town can benefit from such a surplus (e.g. in terms of a transfer to rates services). Consumers pay for connection and availability and if no service is supplied, the consumer does not pay. Economical services are sewage and refuse removal. In this case, the municipality should strive to break even. The same principle applies – no service, no payment. Rates services are funded by property tax. These taxes supply the funds for the following: Office of the municipal manager; Council’s general expenditure; administration; treasury services; libraries and halls; parks, open spaces and community halls; roads and storm water drainage; and traffic and licences.

For these rates services, people living in established townships and rural areas can make use of the services provided by a municipality. Currently, the financial burden is only being carried by members from established townships. With the new MPRA, this will change. The assessment rates are determined in accordance with the level of services received or used. A rebate, which is a portion of the levy for formal townships, is given. According to the new MPRA, this amounts to R20 000, which is deducted from the new valuation figure. If a property’s new valuation is R3 000 000, the rebate is subtracted and the property is taxed on R2 980 000.

The new system will be phased in over a period of three financial years for newly rateable properties, i.e. properties that have not been taxed before. Owners, who make economic contributions, e.g. in terms of water and electricity, will have a bigger rebate. For existing properties being taxed, the new rates must also be phased in over three years, with a 75% discount for the first year, 50% discount for the second year and 25% discount for the third year. Thereafter, the full amount will be levied every year.

People who might have thought that being part of a sectional-title development would exclude them from the new tax have to think again. The tax burden will be shared by all the owners of the properties within the development. For the purposes of the new MPRA, a privately owned estate is defined as follows: "Privately owned towns serviced by the owner means single properties, situated in an area not ordinarily being serviced by the municipality, divided through sub-division or township establishment into (ten or more) full-title stands and/or sectional units and where all services inclusive of water, electricity, sewerage and refuse removal and roads development are installed at the full cost of the developer and maintained and rendered by the residents of such estate."

If you are wondering about the valuation process and the valuators, here is the lowdown. The valuators are all registered with the South African Council for Property Valuators Profession, a statutory body which was established according to the Property Valuers Profession Act of 2002. Such a valuator may not be a councillor. The criteria for valuation are as follows: The person must follow generally recognised valuation practices, methods, standards and provisions described in the Act. A physical inspection is optional. Comparative/analytical aerial photography and computer-assisted mass appraisal systems will be employed, while mass valuation will be used where market data is not available.

All the data collected in this way is compiled on a valuation roll, which is a list of all rateable properties. On this roll must be the following particulars: the registered description, categories, physical address, the extent of the property, the market value and the name of the owner. This valuation roll is submitted to the municipal manager. Within 21 days of receipt of this roll, it must be published in the Provincial Gazette, as well as in a media notice for two consecutive weeks. The roll must be open to public inspection for no fewer than 30 days and objections to the valuation can be lodged to the municipality. The substance of the notice must be disseminated to the local community and a notice must be served to each owner´s property. The valuation roll must be updated at least once a year by the municipality.

In terms of the levying of rates, the municipality can levy different rates according to certain criteria, such as the nature of the property (e.g. a farm or a residence or a business) or if the property promotes social and economic development. The Minister provides the regulations on ratios or rates capping. Depending on the nature of the property, a different cent rate per rand is levied. Properties that qualify for exemption can include municipal property, public service infrastructure and welfare organisations. The financial impact of a levy on the property owner can also be considered. Public benefit organisations have to apply for exemption, however. The discretion of whether or not to apply a rebate rests with the municipality. So far, it appears that the revenue generated from property tax has been well below the average of 15 to 20% of total levies. The new MPRA will probably be implemented on 1 July, 2008.