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Chamber bemoans comment deadline for Cape water levy

Jan 04 2018 06:00

Cape Town - The deadline of January 12 for Capetonians to comment on the City of Cape Town's proposed water levy is way too soon as most people would still be on holiday by then, Kaapstad Sakekamer (Cape Town Business Chamber) said on Wednesday.

This additional levy will be based on property values and the revenue generated would fund water augmentation schemes.

News24 reported in December that the Organisation Undoing Tax Abuse (OUTA) regards such an additional levy for water as "illegal" and has vowed to challenge it.

Karin Pickard Louis, chair of the chamber, said Cape Town's water crisis raises a number of issues that are inter-related and need some context.

In the view of the chamber, the provision of bulk water - through dams and other collection and storage mechanisms - is the responsibility of the national Department of Water and Sanitation.

"Like many of the national departments, it is legendary for its incompetency and lack of strategic thinking and it did not anticipate [the consequences] of the drought nor make any plans to address it," Pickard Louis said in a statement.

"But the City of Cape Town is now left with the problem of not having enough water in the dams to meet the needs of the population. D-Day - when the taps run dry - is now predicted to be at the end of April."

Water restrictions

The chamber explained that water restrictions were introduced gradually as the hopes for heavy rains last winter faded. This reduced water consumption gradually, but in turn created operational problems.

Tariffs for water were set on a stepped basis - the more you used the more you paid. Every household received the first six kilolitres free as part of the stepped tariff structure. The cost per kilolitre of water used increased according to the stepped block in which usage fell.

Given that the imposed restrictions obliged every household to limit consumption to about three kilolitres a month per person, this "free allowance" was not sustainable and was deleted in the latter part of 2017, according to the chamber.

This, however, did not resolve the budget issues for the City as overall income plummeted as consumers complied with the usage restrictions. The current income shortfall is around R1.7bn for the year as costs have remained the same.

Therefore, in the view of the chamber, the "water shortage levy" is essentially to meet the City's current income shortfall.

Public participation process

Implicit in the Municipal Finance Management Act is that the City must have a balanced budget - income must equal expenditure.

"As there now is a shortfall on the water service the City is obliged to adopt a supplemental budget in January, which corrects any such impediments. All budgets must undergo a public comment process and that is what is currently in the public domain," said Pickard Louis.

"The focus is of course only on the water issue due to its significant impact on ratepayers - owners of properties over R400 000 only.

"But as with the budget of the City and its relevant act, there are other acts which impact on the levy proposal, namely the Property Rates Act and the Systems Act."

The chamber pointed out that there is a distinction to be made between the two. Property rates are a tax based on property values and essentially pay for services that benefit all residents and are not directed at any individual. So, whether the service is utilised or not does not impact the charge.

Then there are services which are deemed to relate to a specific user or property and are charged for using tariffs set in terms of the Sytems Act. In the view of the chamber this implies that, as a direct service, the cost is deemed to attract VAT, which is then added to the billed amount - and payable to the national fiscus.

Distinction

For the chamber this distinction raises the issue of whether the proposed levy to be charged for the "drought shortfall" is part of the water tariffs or a rates levy.

"It is certainly based upon property values and not individual consumption, but if it is adopted by the City as a component of its water tariffs it will also attract VAT at 14%," said Pickard Louis.

"It is suggested that the proposed levy be based on an effective 11% increase in property rates. Will it then be compliant with the enabling legislation [Systems Act] or at odds with the 'user pays' principle for 'private good' services?"

For the chamber there are other issues that influence the setting of charges by the City - the concept of affordability.

"The City has an obligation to ensure that every person can have access to and afford the very basic services necessary. This underpins tariff structures and the levying of rates. So cross subsidisation is legally permissible, but at the same time the burden must be 'fair' - subjective concept perhaps," added Pickard Louis.

According to the chamber, National Treasury still has to confirm whether it will allow the City to raise the additional revenue of R1.7bn and incorporate it into its budget for the current year. In the view of the chamber, it is likely that the City will incorporate the additional revenue to be raised into the budget for the current year due to the legal implications if it does not.

"The basis under which the City adopts the charge [the enabling legislation] will be relevant to how it is billed and the total cost to the consumer or ratepayer," said Pickard Louis.

"The public needs to be aware of the process and the outcome in terms of increases in charges immediately after the Supplemental Budget is approved at the end of January.

"Whether a groundswell of opinion against the charges will have any impact is debatable, given that the City is legally obliged to balance its budget and if it can't cut costs it must increase revenue. That is the requirement under national legislation."

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cape town  |  sa economy  |  water
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