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As a property owner, it may come to your attention that your municipality is undertaking a general valuation of all the properties situated in its area. Sometime later, you receive a notice from your municipality that your property has been valued at a figure set out in the notice. You find this strange for two reasons, because:
The notice you receive from your municipality informs you that you may object to the proposed valuation. If your objection fails, you may lodge an appeal. You are aware that these processes are laborious and can take a long time. You are also aware that, pending your objection and appeal, your municipality will bill you based on its new proposed valuation and that, if you do not pay the full amount as billed, your municipality will force you to pay by simply suspending vital municipal services, such as electricity and water supply.
This situation appears to be very unfair to property owners. What is the legal position? Would it be possible to challenge municipalities on this?
Local government: Municipal Property Rates Act
The Municipal Property Rates Act 6 of 2004 (the Rates Act) governs this situation. The relevant provisions of the Rates Act are the following:
Section 50(6): ‘The lodging of an objection does not defer liability for payment of rates beyond the date determined for payment’.
Section 54(4): ‘An appeal lodged in terms of this section does not defer a person’s liability for payment of rates beyond the date determined for payment’.
These sections are hereinafter referred to as the ‘impugned sections’. They are commonly interpreted to mean that, when a property owner lodges either an objection or an appeal, they must, as from the date of implementation of the valuation roll, pay rates based on the disputed municipal valuation pending the outcome of any such objection or appeal. This means that the provisions are what is referred to as a ‘pay now, argue later’ provisions. This interpretation obviously favours municipalities.
It is argued, by proponents of this interpretation, that these provisions are constitutional because the ‘pay now, argue later’ provisions are also found in tax legislation and such a provision was found to be constitutional by the Constitutional Court (CC) in the well-known Metcash Trading Limited v Commissioner for the South African Revenue Service and Another 2001 (1) BCLR 1 (CC). Is that a valid argument?
The purpose of this article is to take a preliminary look at the constitutionality of the impugned sections and to ascertain whether they align with three of the fundamental rights contained in the Constitution, namely –
Section 34 of the Constitution – access to courts
In the Metcash case, certain provisions of the Value-Added Tax Act 89 of 1991 (VAT Act) provided that South African Revenue Service (Sars) was entitled to bypass adjudication by the courts and to have the Registrar issue a writ of execution against a taxpayer who did not pay the assessed amount of tax, even though the tax was disputed and was the subject of an objection or appeal. Thus, the case focused on whether the provisions infringed s 34 of the Constitution by denying taxpayers access to the courts.
One of the main findings of the CC was that s 36(1) of the VAT Act provided that the obligation to pay tax was not suspended ‘unless the Commissioner so directs’. It accordingly held that there would be circumstances in which it would be just for the Commissioner to suspend the obligation to make payment of the tax pending the outcome of the dispute. The Commissioner would need to make a rational decision, which would be reviewable by the courts (see para 62 of the Metcash case). Thus, it was held that access to the courts was not prevented. It is important to note that the Rates Act does not contain such a provision. It, therefore, does not follow that the same conclusion can be reached.
For these and other reasons it would appear that the Metcash case does not constitute a valid basis on which the ‘pay now, argue later’ interpretation of the impugned sections can be considered to be constitutional.
Section 25 of the Constitution – arbitrary deprivation of property
It is significant that the Davis Tax Committee is of the opinion that the pay now, argue later rule is ‘an infringement to the right to property as enshrined in the Constitution’ (see Davis Tax Committee: Tax Administration Report (September 2017) at para 20.5). The Davis Tax Committee was made up of eminent tax specialists headed by the well-known and respected Judge of the High Court. Its views cannot be ignored.
In the Metcash case, the CC did not consider s 25. It is possible that the reason for this is that money might not, at that time, have been considered to constitute ‘property’. It has subsequently been held by the CC that a law, which permits arbitrary deprivation of money, can be unconstitutional (Chevron SA (Pty) Ltd v Wilson t/a Wilson’s Transport and Others 2015 (10) BCLR 1158 (CC)).
It is apparent that the impugned sections of the Rates Act, when accorded the ‘pay now, argue later’ interpretation, permit the arbitrary deprivation of property in the form of money. Thus, the sections appear, at face value, to infringe s 25 of the Constitution.
The CC has held that a deprivation of property is arbitrary, if the law in issue either fails to provide ‘sufficient reason’ for the deprivation or is procedurally unfair (Mkontwana v Nelson Mandela Metropolitan Municipality and Another; Bissett and Others v Buffalo City Municipality and Others; Transfer Rights Action Campaign and Others v MEC, Local Government and Housing, Gauteng, and Others (KwaZulu-Natal Law Society and Msunduzi Municipality as Amici Curiae) 2005 (1) SA 530 (CC) at para 34). Regarding the aspect of procedural fairness, many of the aspects dealt with in the paragraphs below dealing with procedural fairness could also be dealt with under s 25.
Section 33 of the Constitution – just administrative action
The CC has ruled that the imposition of the rates and levies constitutes legislative action and not administrative action (Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan Council and Others 1999 (1) SA 374 (CC)). However, the High Court has subsequently found that ‘[t]he necessarily interrelated process of valuation of properties and the compilation of a valuation roll’ constitutes administrative action (Gillyfrost 54 (Pty) Ltd v Nelson Mandela Bay Metropolitan Municipality [2015] 4 All SA 58 (ECP) at para 67). Thus, the question is whether that process is lawful, reasonable and procedurally fair. For several reasons, too voluminous to cover in this article, I submit that the process is not fair and reasonable.
Section 36 – limitation of rights in Bill of Rights
As it appears from the above that the impugned sections may transgress certain of the basic rights contained in the Bill of Rights, it is necessary to consider them against s 36, which provides that it is necessary to determine whether they are nevertheless ‘reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom’. For a number of reasons, it can be argued that the impugned sections do not pass this test. These reasons are too voluminous to set out in detail in this article. Only certain of these reasons will therefore be touched on.
The impugned sections are not in favour of a single fiscus such as Sars, which has the capacity to properly implement tax legislation. They are in favour of some 257 municipalities in South Africa (SA). It is widely known that many of these municipalities are in a state of disarray.
In many other comparable democracies, services such as water and electricity are not provided by municipalities but rather by utility companies. Such municipalities are not able to withhold such services to force payment of rates or property taxes that they regard as being in arrears. They would need to follow due process to collect arrears resulting in the matter coming before a court.
To comply with their obligations in terms of the Rates Act, municipalities need to employ sufficient professional valuers to attend to valuations and objections and to fund Valuation Appeal Boards to hear appeals. It is generally known that municipalities are failing in this regard and that unreasonable delays are experienced before objections and appeals are decided. For example, it has been ascertained that, in relation to the municipality of the City of Johannesburg, there are many appeals and s 52 reviews still outstanding from the 2013 General Valuation Roll. In addition, there are more than 50 outstanding objection decisions in the first Supplementary Valuation Roll of 2018 (information obtained as at January 2021). It is furthermore understood that there are some local municipalities that simply do not deal with objections and appeals. They do not have money to pay the service providers and/or the knowledge/capacity to deal with valuation matters.
The Rates Act requires the municipal valuer to determine the precise market value of a property. However, it is generally accepted in the valuation profession that valuations are subject to a margin of error of between 10 to 15% of actual market value (Martin Skitmore, Janine Irons and Lynne Armitage ‘Valuation Accuracy and Variation: A Meta Analysis’ (www.researchgate.net, accessed 21-7-2021)). Thus, the reality is that, even when proper valuation methods are utilised, it is difficult to calculate the precise market value of a property. In some countries (such as the United Kingdom), a system of valuation bands is utilised to get around this problem. In such systems, it is not necessary to determine the precise value of a property, but only to determine into which valuation band the property falls. The result is that the number of valuation disputes is significantly reduced. That is not the position in SA, even though valuation banding has been recommended for countries in Africa and South America (WJ McCluskey, FAS Plimmer and OP Connellan ‘Property tax banding: A solution for developing countries’ (2002) 9 Assessment 37).
In addition to determining the value, the municipal valuer is also required to determine into what category the property falls. Rates on properties in business/commercial categories are levied at a much higher rate than those in the residential categories. For example, in the Mangaung Metropolitan Municipality, rates on commercial properties are charged at 4.1 times higher than residential properties (‘Annual Levy, Rates & Tax Increases for 2020/2021: Water Charges, Property Rates, Sewer & Refuse Removal Costs’ (www.mangaung.co.za, accessed 21-7-2021)). Thus, if an error is made, and errors in this regard are made, the consequences for the property owner can be devastating. Yet, in terms of the ‘pay now, argue later’ interpretation the owner must simply pay the higher rates and will get to put his case at a later stage, in many cases at a much later stage.
In view of the above, I submit that it may be argued that the ‘pay now, argue later’ interpretation of ss 50(6) and 54(4) of the Rates Act is not ‘reasonable and justifiable in an open and democratic society based on human dignity, equality and freedom’ and is, therefore, unconstitutional.
Conclusion
As mentioned above, the purpose of this article has been to take a preliminary look at the constitutionality of ss 50(6) and 54(4) of Rates Act. The conclusion is that these sections could well be unconstitutional and that there would be merit in conducting a more thorough investigation into the matter. In addition, it should be explored whether there are possible alternative interpretations of the impugned sections that may align with the ‘the spirit, purport and objects of the Bill of Rights’ (s 39(2) of Constitution). It is proposed to cover this in a future article.
Francis Clerke BA (Stell) LLB (Wits) LLM (UCT) is a legal practitioner at JP Joubert Attorneys in Somerset West.
This article was first published in De Rebus in 2021 (Aug) DR 26.
