Functions Bill address by Minister of Finance, TA Manuel, MP National
Assembly
7 June 2007
Madam Speaker
Honourable Members
The Constitution assigns the responsibility for macroeconomic policy, an
integral part of which is fiscal policy, to the national sphere of government.
The national executive is therefore charged with the responsibility of ensuring
coherence of the tax system across all three spheres of government. To this
end, government has embarked on a significant tax reform strategy, the goals of
which are to develop a system that is efficient, equitable, internationally
competitive and simple to administer. In 2003 this House passed the Provincial
Tax Regulation Process Act which sets out the framework for regulating
provincial taxes. The Bill we are debating here today sets out a similar
framework with respect to local government.
It is with this constitutional framework as the basis, that we ask the House
to pass the Municipal Fiscal Powers and Functions Bill today. This legislation
will regulate the imposition of surcharges on fees for services by
municipalities, as provided by section 229 (1) (b) of the Constitution. A
municipality may impose other taxes, levies and duties appropriate to local
government or to the category of local government into which that municipality
falls if authorized by national legislation. Viewed in this context; this Bill
is an enabling legislation. Without it municipalities cannot legally impose any
new taxes. This Bill presents our municipalities with the opportunity to
introduce new taxes, but within a carefully managed national macroeconomic
policy framework.
Process for the introduction of a new municipal tax
The Bill gives the Minister of Finance the authority, to evaluate requests
for the introduction of new municipal taxes by a municipality, group of
municipalities or organised local government to ensure consistency with
national economic policy and other constitutional requirements. If an
application is approved, then the Minister of Finance will issue regulations
that will prescribe the date from which and the framework in terms of which the
municipal tax may be imposed. This legislation will therefore put in place a
pro-active framework for the exercise of local fiscal powers and functions by
ensuring that there is appropriate interaction between spheres of government
prior to the introduction of any new municipal taxes.
The Bill is intended to strike an appropriate balance between the right of
municipalities to impose taxes, levies, duties and surcharges that will enable
them to play a more meaningful and effective role in the development of their
communities by delivering additional and better services to them, on the one
hand, and with the constitutional responsibility of national government to
oversee sound macro-economic policy of the country, on the other.
The intention is to ensure that our municipalities are financially viable in
order to guarantee that the communities they serve benefit especially with
regard to basic services. We do not want to allow a situation where taxes are
imposed without appropriate control mechanisms that ensure that these same
communities suffer directly either by having to pay more in taxes than they are
able to afford. Or alternatively by losing through loss of jobs and income when
it becomes economically unsound for businesses to remain in a particular area
due to the high tax burdens imposed by that municipality.
Regulation of surcharges on municipal services
The Municipal Fiscal Powers and Functions Bill also deals with municipal
surcharges and municipal taxes referred to in Section 229 of the Constitution.
A surcharge on a municipal service is an additional charge levied by a
municipality in addition to the fee or tariff charged for the provision of a
municipal service. A surcharge can therefore be viewed as an indirect tax, as
it is a payment in addition to the normal charge. Surpluses generated from
trading services, such as electricity and water, are used by municipalities for
the funding or subsidising of other essential municipal activities where
limited or no charges are levied.
The legislation will prescribe, through regulations, compulsory national
norms and standards for imposing surcharges, including maximum surcharges that
may be imposed by municipalities on fees for services provided by them or on
their behalf. The norms and standards for surcharges on specific municipal
services will be developed in consultation with relevant industry stakeholders.
As pointed out, we want to ensure that the taxes and surcharges imposed do not
impede the development of the local economy. This function of regulating this
authority is best placed centrally with national government.
As national government, the interests of the members of our communities have
always been given priority and this proposed legislation seeks to continue to
protect them through the regulation of taxes and surcharges at the level where
it affects their daily access to basic services.
In conclusion
Although proposals have been made that an independent regulator be appointed
to undertake these functions, as I previously indicated to this house during
our deliberations on the Division of Revenue Bill, as elected representatives
we have a collective responsibility in ensuring proper coordination of
macroeconomic policy objectives across the three spheres of government.
The legislation will not set specific taxes which municipalities may impose,
but provides that the Minister of Finance, or a municipality, group of
municipalities or organized local government may initiate a municipal tax and,
if approved, how these taxes are imposed by municipalities.
Lastly, I want to thank the Portfolio Committee on Finance, ably presided
over by the honourable Nhlanhla Nene for the hard work that they put in to
finalise the proposed legislation. We recognise the importance of the processes
of consultation undertaken and we thank you for the frank and in-depth
discussions with regard to the provisions and implications of the bill.
I thank you.
Issued by: National Treasury
7 June 2007
Source: National Treasury (http://www.treasury.gov.za)
