LOCAL GOVERNMENT:PROPERTY RATES BILL, 2003

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• LOCAL GOVERNMENTPROPERTY RATES BILL, 2003
• Thabo Makhakhe
• Regulatory and Public Policy
• 14 May 2003

Telkom Regulatory and Public Policy
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• INTRODUCTION
• Telkom welcomes the opportunity to comment on
  the Local Government Property Rates Bill, 2003
  as published in Government Gazette No 24589
  (General Notice 850) of 18 March, 2003.

Telkom Regulatory and Public Policy
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• GENERAL
• Telkom, a significant property owner and
  ratepayer, supports the general tenor and
  objectives of the Bill.
• There are however specific areas of concern,
  which need to be addressed to ensure that the
  essential services provided by Telkom will not be
  substantially and negatively impacted in terms of
  administration and cost.

Telkom Regulatory and Public Policy
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• PUBLIC INFRASTRUCTURE
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• Rates on public service infrastructure are
  disallowed, which by definition includes
  telecommunications towers or lines forming part
  of a telecommunications system serving the public
  across a municipal boundary and easements and
  servitudes in connection with such
  infrastructure.
• Yet a sizable portion of the countrys public
  telecoms infrastructure is excluded from the
  definition of public service infrastructure,
  thereby defeating the stated national objectives
  of universal service and rendering affordable
  telecommunication services to the public.

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• Due to the reasons stated, it is proposed that
  the definition of public service infrastructure
  be amended to include all public
  telecommunication infrastructure, including
  masts, earth gateway stations, exchanges
  (switches) and the housing used to accommodate
  exchanges.
• The proposed amendment will then coincide with
  the other provisions relating to electricity and
  water, where the entire distribution networks
  including power stations, substations, reservoirs
  and dams are incorporated in the definition.

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• The omitted parts of infrastructure form a
  significant component of the greater public
  telecommunications network and should for that
  reason be included in the definition.

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• The issues raised so far really forms the
  essence of Telkoms input. However, we wish to
  make further comments in respect of certain other
  sections of the Bill that are similarly
  important.

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• RATES POLICY
• Every municipality must adopt a rates policy
  which treats all persons liable for rates
  equitably and which specifies the applicable
  differentia for determining (1)rates for
  different categories of property, (2)exemptions
  and (3)rate rebates or reductions.
• Because rates policies determine the criteria
  for all exemptions, rebates and reductions, they
  should incorporate the exemptions provided for in
  section 15.
• Section 15 includes prejudice to (1)the national
  economic policies and (2)economic activities
  across municipality boundaries, among others.

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• It is also proposed that as in the case of
  private property, rates be disallowed in respect
  of a fixed percentage of the value of property
  containing public service infrastructure.
• This proposal is made in view of the importance
  attached to public service infrastructure in the
  bill.

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• DIFFERENTIATED RATES EXEMPTIONS
• The Bill allows for the levying of different
  rates in respect of different categories of
  property as may be determined by means of rate
  policy and by-laws.
• In this regard it is proposed that consideration
  be given to the introduction, in the bill itself,
  of a special discount rate mechanism for rating
  property used exclusively in connection with the
  rendition of telecommunications in the national
  public interest.

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• RECOVERY OF RATES IN ARREARS
• In terms of this Bill, Telkom, a significant
  lessee of property, could be made to pay rates if
  a lessor fails to meet its property rates
  obligations.
• Lease agreements normally exclude set-off.
  Consequently, it could be impossible for the
  lessee to recover the expense owing to breach of
  contract.
• Telkom proposes that the status quo be retained.
  

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• VALUATION CRITERIA
• The Bill provides that property must be valued
  in accordance with the generally recognized
  valuation practices. These include various models
  such as the Comparable Sales method, the Income
  Capitalisation method and the Depreciated
  Replacement Cost method.
• Since the Bill does not specify the valuations
  methods to be applied in any particular case for
  purposes of determining the rateable value of
  property, much is left to the discretion of each
  individual municipality.

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• In order to counter arbitrary and inequitable
  application, the Bill should prescribe the
  valuation method applicable to each category of
  property or class of improvement.
• The Bill also permits the application of
  alternatives such as mass valuation where the
  value of property is determined without physical
  inspection of the properties concerned.
• For purposes of checking arbitrary and
  inequitable results, the Bill should provide for
  the physical inspection of all properties as is
  done under current ordinances.
• The Bill enables a valuer to obtain insight into
  private dealings in connection with the property,
  such as long-term lease agreements. In so doing a
  valuer could apply what is known as the Income
  Capitalisation valuation method that takes into
  account extraneous personal as opposed to real
  rights.

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• Insight into the private dealings of property
  owners could result in artificially inflated
  values being attached to property, thereby
  benefiting the municipality by means of higher
  property rates.
• For a national public operator such as Telkom
  that could be potentially disastrous and a
  serious debilitating factor to its ability to
  provide affordable telecommunications to
  customers.
• The mere fact that rates could be adjusted
  upwards or downwards depending on the renewal or
  termination of a lease is unsatisfactory and
  should therefore be disallowed.

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• Current practice under existing ordinances is
  for councils to charge rates either only for the
  basic land value or alternatively for its
  improved value.
• The Bill on the other hand apparently applies
  one single rate only to the all inclusive
  improved value of the property.
• It is essential for purposes of objecting to or
  appealing valuations that land and improvement
  value be indicated separately.

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• ADMINISTRATION OF OBJECTIONS AND APPEALS
• Neither the valuer nor a member of an Appeal
  Board may disclose to any person (apparently not
  even to an objector or owner) any information
  obtained during an evaluation inspection.
• Such an arrangement defeats the constitutional
  objectives of transparency and fairness, and will
  materially prejudice any objector or appelant in
  the presentation of its case.
• Telkom proposes a limitation to the provision so
  as to exclude owners and objectors from its
  application.

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• ORDERS RELATING TO COST
• Telkom believes that no appeal brought in good
  faith, against an administrative decision of a
  tribunal, should be subject to an order for
  costs.
• It is considered unfair to have to pay when
  objecting to a taxable valuation of real estate
  on reasonable grounds.
• Telkom therefore recommends that section 63(a)
  be removed in its entirety.

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• THANK YOU

Telkom Regulatory and Public Policy