Property Taxes in South Africa

Presented by

Michael E. BellMEB Associates, Inc.

Prepared forWorld Bank Workshop

Innovations in Local Revenue Mobilization

Property Taxes in South AfricaBased on Research by

Michael E. BellJohn H. Bowman

Supported byLincoln Institute of Land Policy, Harvard Institute

for International Development, U.S. State Department, U.S. Embassy in Pretoria, South

Africa Department of Constitutional Development

Local Government Reform

Local government under apartheid

Transition Local Government Act of 1993

Municipal Structures Act of 1998

Property Taxes in South Africa

Site Rating

Flat Rating

Composite Rating

Site Rating Compared to Flat Rating

Assessment Quality (difficult to interpret for site rating)

Administrative Ease

Broadening the Base (bringing in new areas)

Assessment Quality

Assessment/Sales Ratios

Coefficient of Dispersion

Price Related Differential

Assessment/Sales Ratios Johannesburg – 125.0/Cape Town – 8.0

Witbank – 75.0/King William’s Town – 51.5

Pretoria – 108 (of 147) neighborhoods between 75.1 and 100.0

Port Elizabeth – 26 (of 36) neighborhoods between 20.0 and 29.9

Coefficients of Dispersion Johannesburg – 47.0/Cape Town – 46.7

Witbank – 25.7/King Williams Town – 15.4

Pretoria – 67 (out of 147) neighborhoods between 15.1 and 30.0

Port Elizabeth – 13 (out of 36) neighborhoods between 15.1 and 30.0

Price Related Differentials Johannesburg – 1.256/Cape Town – 1.333

Witbank – 1.068/King Williams Town – 1.003

Pretoria – 97 (out of 147) neighborhoods greater than 1.101with 7 less than 1.000

Port Elizabeth – 17 (out of 36) neighborhoods greater than 1.100 with 9 less than 1.000

Administrative Ease Factors Influencing the Choice of Site v.

Flat RatingNumber of parcels to be valuedSize of the local governmentComposition of the property tax basePrevalence of informal housing unitsProvincial Dummies (highly important, for

historical reasons)

Administrative Ease Preliminary evidence suggests that

selection of site rating somewhat more likely for municipalities with a larger number of parcels to value and for municipalities with a larger proportion of their housing units in informal housing

Broadening the Base We looked at three case study

municipalities to investigate how new areas had been incorporated in the tax base as part of the amalgamations of 1995 and 2000. Case studies were George, Nelson Mandela Metropolitan Municipality and the City of Tshwane Metropolitan Municipality

Broadening the Base – Findings1. All communities made progress with areas

amalgamated in 19952. Less progress was made with areas

amalgamated in 2000, with the exception of the City of Tshwane

3. Values for newly incorporated properties typically very low and often represented subsidized transfer prices

Broadening the Base – Findings4. Property markets generally not well

functioning in newly amalgamated areas, with some limited evidence of emerging markets in some neighborhoods in the City of Tshwane

Conclusions1. No apparent advantage in terms of assessment

quality to site or flat rating (other factors varied)2. Preliminary evidence that municipalities with

many, or more difficult, properties to value are somewhat more likely to have site rating

3. Newly amalgamated brought into base faster in Tshwane, consistent with administrative ease arguments for site rating

4. Tradeoff between administrative ease and transparency with site rating