Treasury could impose more tariff increases to create revenue for municipalities

National Treasury may advise municipalities that it already has the power to levy even more taxes, surcharges and tariffs on beleaguered South African consumers so as to create new sources of revenue for municipalities.

This includes an additional surcharge on electricity tariffs that does not require approval by the energy regulator, Nersa.

This is set out in a draft circular from Treasury that has been published for public comment.

Last year the Johannesburg metro council had to beat a hasty retreat after an additional electricity surcharge of R200 on prepaid electricity prompted a public outcry.

This surcharge was not made known to residents in the city’s draft budget.

The City of Cape Town has, however, had a surcharge on electricity for a couple of years and maintains that the Municipal Fiscal Powers and Functions Act allows this.

In its circular, Treasury explains that this law gives municipalities the authority to develop such sources of income, subject to certain requirements.

These requirements include that such taxation may not undermine the collection of taxes by the national government.

Comprehensive amendments to the law – enabling the creation of a framework compelling property developers to pay surcharges for additional municipal infrastructure that serve their developments – are open for public comment.

The draft bill makes provision for municipalities to levy such charges as a condition for the approval of the development.

Municipalities are, however, required to record the income as a debt until the infrastructure is installed.

If the installation is not completed timeously, they are required to repay the money to the developer.

According to the bill, municipalities may not use the money for any purpose other than for the specific infrastructure.

Advocate Alwyn Nortjé of listed property developer Calgro M3 said municipalities would battle to accept that the project developers’ contribution could only be spent on that project.

The risk of having to repay the money, if the installation was not completed within a few years of its being levied, would be a further stumbling block, he added.

The bill suggests that municipalities should compensate developers for the additional money spent on installing external services, on their (the municipalities’) behalf.

Nortjé wondered where the property developers would find the money for this if the municipalities did not pay.

The SA Property Owners’ Association (Sapoa) warned that development levies should not be used to compensate municipalities for infrastructure that had already been paid for.

It also criticised the provisions of the draft bill, according to which municipalities determine a unit cost for development contributions, and insisted that it should be based on the actual cost of the new infrastructure.

Rapport understands that Tshwane has rejected the draft bill.

Louise Muller from the City of Cape Town’s directorate of finances said the draft bill was developed primarily by engineers and inputs from financial managers were urgently required.

In an earlier circular, Treasury urged municipalities to limit tariff increases to the inflation rate of about 4.5% so that consumers could afford it. Bigger increases would have to be motivated very carefully.

Electricity tariffs are, however, expected to increase by more than 6%, after the energy regulator suggested an increase of 6.24%.

The proposal is still open for public comment.

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