Property Taxes in South Africa Presented by Michael E. Bell MEB Associates, Inc. Prepared for World Bank Workshop Innovations in Local Revenue Mobilization

Property Taxes in South Africa Based on Research by Michael E. Bell John H. Bowman Supported by Lincoln 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 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 – Witbank – 1.068/King Williams Town – Pretoria – 97 (out of 147) neighborhoods greater than 1.101with 7 less than Port Elizabeth – 17 (out of 36) neighborhoods greater than with 9 less than 1.000

Administrative Ease Factors Influencing the Choice of Site v. Flat Rating Number of parcels to be valued Size of the local government Composition of the property tax base Prevalence of informal housing units Provincial 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 Case studies were George, Nelson Mandela Metropolitan Municipality and the City of Tshwane Metropolitan Municipality

Broadening the Base – Findings 1.All communities made progress with areas amalgamated in 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 – Findings 4.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

Conclusions 1.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