Threat of a New Metro Municipal Tax on Business Enterprises

Chapter 7 of the Constitution of the Republic of South Africa Act of 1996 provides for the provision of the so-called third tier of government in South Africa at local level. The Constitution Act is flexible enough to enable the nine provinces of South Africa to enact supplementary legislation to ensure that the objectives set-out in the Constitution are achieved.

Third tier government is vested in 283 municipalities and a number of district municipal councils. District municipal councils were given powers to provide services but in practice this mostly has not happened and has been difficult to implement. Studies conducted by the Department four years ago indicated that 74% of the district councils performed less than 50% of their functions. Less than half of the district municipal councils provided water and sanitation to residents. These areas then became dependent on the nearest municipality to provide these services even though they were not authorised to do so, and at times leading to confusion. This was often linked to a lack of cooperation leading to turf wars. Factional fights within political parties and protest action about poor or no service delivery is also problematic. The Governing Party has indicated that it intends considering debating a single tier local government system at its policy conference to be held during June 2012.

If it is decided to proceed with a single tier of local government such a development should not be considered in isolation. The Minister of Finance, Pravin Gordhan, earlier in September, drew attention to the R62bn owed to municipalities in South Africa by households, businesses and even government departments who are responsible for 4% of this debt. This high level of debt impacts negatively on the provision of services and the growth of the economy is retarded.

Wide scale fraud and corruption at local government level is prevalent on and in some instances municipalities were facing collapse and had to be put under administration. Salary bills and cost of perks of senior municipal officials spiralled without the commensurate increase in performance and service delivery. It was recently disclosed that the City Manager of Johannesburg earns R2.3million a year, which is higher than the salaries earned by the Deputy President and the Chief Justice who earns R2.2 million a year. This is followed by eThekweni (R2.1m), Ekurhuleni (R1.8m) and Cape Town (R1.7.

At a recent conference of the South African Local Government Association (SALGA), a proposal about the metro municipalities being able to impose additional taxes on businesses to fund their infrastructure was floated. Predictably, this raised a howl of indignation from Business Unity South Africa (BUSA).

The proposal appears to be gaining momentum. Mr Tebogo Makube, the Manager responsible for Policy Development at the Financial and Fiscal Commission last week indicated to the Parliamentary Portfolio on Energy that a tax to be imposed on business may be the only alternative to assist local government to finance their infrastructure requirements. There are currently eight metros in South Africa, which includes the eThekweni Municipality. The eight metros collectively require R271bn to fund their infrastructure requirements and a 140 municipalities require approximately R98bl. Municipalities do not have easy access to the capital markets. It is estimated that collectively all levels of local government will require approximately R421bn to fund their infrastructure requirements.

The Financial and Fiscal Commission is an independent and specialised body created in terms of Section 220 of the Constitution Act of 1996 and one of its main functions is to ensure an equitable division of revenue to the national, provincial and local spheres of government. Ironically, it is required to do this with impartiality in terms of Section 220(2). Mr Makube`s reasoning is that when this additional infrastructure tax on business enterprises is imposed by the eight metro municipalities it will free the national treasury to increase the allocation to the smaller municipalities for their infrastructure requirements.

This proposal may appear daft, discriminatory and unworkable to many in the business sector but the promotion thereof will require close scrutiny by all business organisations such as the Association.

Pieter Rautenbach