Tariffs | Sisonke Municipality

TARIFF POLICY

According to the White Paper on Local Government, dated March 1998, National Government and other stakeholders have agreed on a set of principles to guide tariff policy as follows:
According to the White Paper on Local Government, dated March 1998, National Government and other stakeholders have agreed on a set of principles to guide tariff policy as follows:

Payment in Proportion to the Amount Consumed.
As far as it is practically possible, consumers should pay in proportion to the amount of services consumed.
Full Payment of Service Costs.
All households, with the exception of the indigent, should pay the full costs of services consumed. (Refer to Indigent Policy)

Ability to Pay
Municipalities should develop a system of targeted subsidies to ensure that poor households have at least a minimum level of basic services. (Refer to Indigent Policy)

Fairness
Tariff policies should be fair in that all people should be treated equitably.

Transparency
Tariff policy should be transparent to all consumers and any subsidies and concessions must be visible and understood by all consumers.

Local Determination of Tariff levels
Municipalities have the flexibility to develop their own tariffs in accordance with these principles.

Consistent Tariff Enforcement.
A consistent policy for dealing with non-payment of tariffs must be developed. This must be targeted and enforced with sensitivity to local conditions.

Ensure Local Economic Competitiveness.
Municipal tariffs must not unduly burden local business through higher tariffs, as these costs affect the sustainability and competitiveness of such businesses.

These policy principles were incorporated into the Local Government Municipal Systems Act No. 32 of 2000. In terms of section 74 (2) of the Local Government Municipal Systems Act 2000, the Municipality's tariff policy must reflect at least the following principles, namely that:

Users of municipal services should be treated equitably in the application of tariffs;
The amount individual users pay for services should generally be in proportion to their use of that service;
Poor households must have access to at least basic services through:
Tariffs that cover only operating and maintenance costs;
Special or life line tariffs for low levels of use or consumption of services or for basic levels of service; or
Any other direct or indirect method of subsidisation of tariffs for poor households.
Tariffs must reflect the costs reasonably associated with rendering the service, including capital, operating, maintenance, administration, replacement costs and interest charges;

Tariffs must be set at levels that facilitate the financial sustainability of the service, taking into account subsidisation from sources other than the service concerned. A service is financially sustainable when it is provided in a manner that would ensure its financing from internal and external sources is sufficient to cover the costs of the initial capital expenditure required, operating the service, maintaining, repairing and replacing the physical assets used in its provision:

Provision may be made in appropriate circumstances for a surcharge on the tariff for a service;
Provision may be made for the promotion of local economic development through special tariffs for categories of commercial and industrial users; and
The economical, efficient and effective use of resources, the recycling of wastes and other appropriate environmental objectives must be encouraged.
The extent of subsidisation of tariffs for poor households and other categories of users should be fully disclosed.

Need for a Tariff Policy

Revenue Adequacy and Certainty

The Municipality must have access to adequate sources of revenue to enable it to carry out its functions. The Municipality must:

Fully exploit the available sources of revenue to meet its development objectives; and
Be reasonably certain of its revenue to allow for realistic planning.

Sustainability

Financial sustainability requires that the Municipality must ensure that its budget balances. This means that the Municipality must ensure that:

Services are provided at affordable levels; and
It is able to recover the costs of service delivery;

The Municipality realises that no bailout will be provided to it if it exceeds its budget or fails to establish proper financial management controls. Councillors must set realistic budgets. The Municipality believes that all members of the community have the right to have access to at least a minimum level of basic services.

Therefore, there is a need to subsidise poor households, who are unable to pay even a proportion of service costs.

Effective and Efficient usage of Resources.

Resources are scarce and must be used in the best possible way to reap the maximum benefit for the community. However, there are no mechanisms available to ensure that the Municipality's decisions will ensure effective allocation of resources. It is therefore important that the community provide the necessary checks and balances. They can do this by participating in the budget process. In addition, performance audits should be carried out by the office of the Auditor-General or outsourced to a private firm. Efficiencies in spending and resource allocation will ultimately increase the access of the poor to basic services.

Accountability, Transparency and Good Governance.

The Municipality must be accountable to the community for the use of its resources. Councillors must be able to:

Justify their expenditure decisions; and
Explain why and how the revenue necessary to sustain expenditure, is raised.

Budgeting and the financial affairs of the Municipality must be open to public scrutiny. The community should be part of the decision-making process about how revenue is raised and spent. Community participation in budgeting should include those groups in the community, such as women, who face particular constraints in participating. It must also include a capacity-building component to ensure that people understand the prioritisation process (why resources are allocated to one area rather than another).

Equity and Redistribution

The Municipality must treat members of the community equitably with regard to the provision of services.
Development and Investment

Meeting basic needs in the context of existing services backlogs, will require increased investment in municipal infrastructure.

Sources of Revenue

In terms of section 229 of the Constitution of the Republic of South Africa 1996 (Act No 108 of 1996) the Municipality may impose:

The Municipality must treat members of the community equitably with regard to the provision of services.Meeting basic needs in the context of existing services backlogs, will require increased investment in municipal infrastructure.In terms of section 229 of the Constitution of the Republic of South Africa 1996 (Act No 108 of 1996) the Municipality may impose:

Rates on property and surcharges on fees for services provided by or on behalf of the Municipality; and
If authorised by national legislation, other taxes, levies and duties appropriate to Local Government, but it may not impose income tax, value-added tax, general sales tax or customs duty.

The power of a Municipality to impose rates on property, surcharges on fees for services provided by or on behalf of the Municipality, or other taxes, levies or duties:

May not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries, or the national mobility of goods, services, capital or labour; and
May be regulated by national legislation.
In terms of section 4(1)(a) of the Local Government: Municipal Systems Act 2000 (Act No 32 of 2000) the Council may finance the affairs of the Municipality by:
Charging fees for services; and
Imposing surcharges on fees, rates on property and to the extent authorised by national legislation, other taxes, levies and duties.
Section 16 of the Local Government Municipal Systems Act 2000 (Act No 32 of 2000) requires the Municipality to establish appropriate mechanisms, procedures and processes to ensure community participation in, amongst other things, the preparation of its budget.

Section 10G(7)(a)(ii) of the Local Government Transition Act No. 209 of 1993, as amended, and the Kwazulu-Natal Joint Services Act No.84 of 1990, authorises the Municipality to levy and recover, by resolution supported by a majority of the members of the Council levies, fees, taxes and tariffs in respect of any function or service of the Municipality. It further authorizes the Municipality, when it determines property rates, levies, fees, taxes and tariffs to:

Differentiate between different categories of users or property on such grounds as it may deem reasonable;

In respect of service charges from time to time by resolution, amend or withdraw such determination and determine a date, not earlier than 30 days from the date of the resolution, on which such determination, amendment or withdrawals will come into operation;

Advertise on notice boards calling for objections; and
Recover any charges so determined or amended, including interest on any outstanding amount.

The Local Authorities Ordinance (Ordinance No. 25 of 1974) contains the following provisions:

Rates can be paid in not less than ten instalments in a financial year if it cannot be paid in one lump sum.
The revenue of the Municipality consists of the rates, taxes, fees, charges, fines and other sums imposed or recoverable by or payable to the Council under any law;

Interest charged at 18% per annum (1.5% per month), must be paid to the Municipality on rates that have not been paid within thirty days from the date on which such rates became due. The interest rate charged should be higher than the rate payable by the Council to its bank in respect of an overdraft, for the period during which such rates remain unpaid after the expiry of the period of thirty days;

Rates that are outstanding for more than two months should incur a 10% collection charge (Local Authorities Ordinance, Section 171);

The Council may charge interest on any other amount due to it that may not have been paid within thirty days from the date on which such amounts became due. The interest rate charged is one percent higher than the rate payable by the Council to its bank in respect of an overdraft for the period during which such amounts remain unpaid after the expiry of the period of thirty days. Interest may not be charged on:

Fines imposed by a court and due to the Council; and
Monies due to the Council in terms of a law and in respect of which that law provides that a penalty on interest must be levied if such monies are not paid on the date when due or payable.
The interest rates referred to above must be amended on the first day of the month following on the month in which the Council's bank has amended the interest rate payable by the Council to its bank in respect of an overdraft; and
Any fine imposed or money treated as bail in respect of any offence under the ordinance or a bylaw made by the Council, must be paid to the Municipality.

Categories of Tariff Charges

Property Taxation.

The major source of local taxation is the property tax (property rates). The owners of property in municipal areas have to pay a tax based on a valuation of their properties in order to finance certain municipal services. While this tax is by no means the sole source of municipal revenue, it is an important source of discretionary revenue for the Municipality and enables it to function effectively. For details of Property Taxation refer to Procedures on Rates. For exemption of rating of State properties, refer to the relevant Act.
Services charges.

An important source of local own revenue is charges that are directly related to the provision of municipal services. The majority of these are utility charges, such as electricity and water, which have contributed significantly to the growth of Municipalities' revenue. Cost recovery is an essential part of sustainable service delivery. The system of revenue sharing is aimed at subsidising the operating costs of basic services to indigent and low-income households. Refer to Procedures on 'Electricity and Water' for details of service charges.

Levy Collection.

Another source of income to the Council is regional levies. In terms of the KwaZulu and Natal Joint Services Act,1990, all enterprises within the jurisdiction of the District Councils are obliged to register with the Council for the payment of regional Council levies. Registration is compulsory, but the Council may exempt the levypayer if the estimated levy does not exceed R50 based on the total turnover and remuneration for the year as furnished by the enterprise concerned. These totals are ascertained by assessing the financial status of the enterprise.

Registered enterprises are liable for

Regional services levy based on salaries, wages and drawings; and
Regional establishment levy based on turnover (excluding VAT) and other income as defined in the Regional Services Councils Act.
In terms of the Regional Services Council Act No 109 of 1985 and the Kwazulu-Natal Joint Services Act No. 84 of 1990, the Minister of Finance may from time to time, after consultation with the Council for the co-ordination of the local Government Affairs established by section 2 of the Promotion of Local Government Affairs Act, 1983 (Act No 91 of 1983), and by notice in the Gazette, determine the manner in which the regional services levy and the regional establishment levy shall be calculated and paid. The rates to be used in calculations are normally stipulated in the monthly ML4 forms that are sent to levy payers.

Legislation

Section 160 of the Constitution of the Republic of South Africa 1996 determines that a Municipality may not delegate the power to impose taxes, tariffs and other charges. Such tariffs must be approved by decision of a majority of the Councillors in a Council after taking into consideration all the required factors.

In respect of the provision of water and sanitation services, the Water Services Act of 1997 determines that a Municipality/Water Services Authority must supply water and sanitation services in terms of conditions set by the Municipality/ Water Services Authority. The conditions that a Municipality must set must provide, amongst other things, for the determination and structure of tariffs. These powers must be read with section 21 of the Act in terms of which the Municipality must pass bylaws that provide, amongst other things, for the determination and structure of tariffs and the payment and collection of money due for water and sanitation.

In terms of section 9 of the Electricity Act 1987 (Act No 21 of 1987) the holder of electricity licence may not charge any consumer with other tariffs than those specified in the schedule of approved tariffs in its licence. Further, an authority of an electricity licence is obliged to supply electricity within the area of supply mentioned in its licence, to every applicant who is in a position to make satisfactory arrangements for payment thereto.

The Local Authorities Ordinance regulates the determination of property rating tariffs. It determines as follows:

The Council must levy the property rates for an ensuing financial year not later than 30 June;
The Council may annually revise its budget and increase or decrease its property rates;

The property rates may be levied in terms of any of three systems, namely:

On the total municipal valuation of a property (flat rating);
On the site value only (site rating); or
At different tariffs on the municipal valuation of the site and improvements on the site (composite rating); and
The Council may differentiate in the determination of property rates on the basis of the size of the land, the purpose for which the property is used, the purpose for which the property is zoned for the area in which the property is situated.

In terms of section 74 of the Municipal Systems Act, 2000, the Council must adopt and implement a Tariff Policy that complies with the provisions of any applicable legislation on the levying of fees for municipal services provided by or on its behalf. The Tariff Policy may differentiate between different categories of users, debtors, service providers, service standards, geographical areas and other matters as long as the differentiation does not amount to unfair discrimination. Section 75 of the Act requires that the Council adopt by-laws to give effect to the implementation and enforcement of its Tariff Policy. Such by-laws may differentiate between different categories of users, debtors, service providers, services, service standards and geographical areas as long as such differentiation does not amount to unfair discrimination.

Classification of Services

Traditionally, municipal services have been classified into four groups based on how they are financed. The four groups are as follows:

Trading Services

Water and electricity provisions are trading services. Typically the consumption of a trading service is measurable and can be apportioned to an individual consumer. These services are managed like businesses. The tariffs for these services are determined in such a way that a net trading surplus is realized. The trading surplus is used to subsidise the tariffs of non-trading services, in other words to relieve property rates.

Economical Services

Sewage and domestic household removal are economic services. The consumption of an economic service can be measured or determined with reasonable accuracy and apportioned to an individual consumer. Whilst they are also managed like businesses, the tariffs for these services are normally determined in such a way that user charges cover the cost of providing the service.

Subsidised Services

Subsidised services include fire fighting, approving building plans and the construction of buildings, leasing of municipal facilities, selling of burial sites and certain town planning functions. Subsidised services are those services the consumption of which can be determined reasonably accurately and apportioned to individuals and consumers. However, if the tariffs for using this service were based on its real cost, nobody would be able to afford it. In most cases not only would the consumer benefit from using the service, but also other persons. A user charge is payable for using the service, but the tariff is much lower than the real cost of providing the service.

Community Services

Community services are those services the consumption of which cannot be determined nor apportioned to individual consumers. These services are typically financed through finance rates. Examples are the establishment, operation and maintenance of parks and recreation facilities, provision and maintenance of roads and storm water drainage systems, the establishment, management and maintenance of cemeteries and traffic regulation.

The Municipality also provides services in support of the above mentioned services. These are called staff functions and include committee services, records and archives, financial management accounting and stores, occupational health and human resources management. These services are financed through property rates.

TARIFF POLICY

Introduction

Objective

Tariff Policy Principles

Need for a Tariff Policy

Equity and Redistribution

Categories of Tariff Charges

Classification of Services