Cash-starved municipalities want tax on businesses

An association of the country's 257 municipalities is pushing for the introduction of a local-government tax - most likely to be in the form of a business tax - to bolster municipal finances.

But organised business has rejected the idea as ill-timed and a job killer.

The South African Local Government Association (Salga), the member municipalities of which are owed R117-billion by businesses, government departments and residential customers, says it is high time the third tier of government was allowed to participate in the proposed tax regime to protect the revenue streams of towns, cities and districts.

Thanks to the sluggish economy and widespread unemployment, residents and businesses have been battling to pay their municipal services bills. Salga argues that the tax could help bolster municipal revenues.

Of the R117-billion owed to municipalities, only about R20-billion to R30-billion can realistically still be recovered.

A senior Salga official said this week that the proposed tax would not necessarily be an additional levy on existing taxes.

The official, who may not be named as he is not authorised to speak to the media, said the options being weighed up were either the introduction of a new tax or being allocated a certain percentage of an existing tax levied by national Treasury.

"Legislation is not created to protect municipal revenue streams and we need to look at that. We have shifted a lot of responsibility, especially with regards to municipal revenue, to municipalities," the official said.

He noted, however, that this plan would have a better chance of succeeding in municipalities with a sizeable tax base - most likely big cities and large towns.

Alan Mukoki, CEO of the South African Chamber of Commerce and Industry (Sacci), said the proposal lacked any real root-cause analysis and would certainly lead to job cuts if pushed through.

"If you want to tax businesses even more, that money will have to come from somewhere. One of the softest targets in terms of cost reduction or containment in any business is people, and businesses will get rid of people and use machines. The timing of this is just wrong, because you cannot be introducing taxes in an already underperforming environment. This is not a very progressive step," said Mukoki.

"Salga needs to look at why people are not paying for services or perhaps why services are so expensive to the ordinary consumer."

The idea of a local tax is one of a number of actions Salga is taking to try and improve municipal finances. These include forcing Eskom to sign service-level agreements to enable municipalities to levy electricity surcharges in areas where the utility provides power directly to customers.

This is meant to enable municipalities to earn revenue from the sale of electricity in these areas, which municipalities cannot do at the moment.

Despite the Municipal Systems Act empowering municipalities as sole distributors of electricity at local level, Eskom provides electricity directly to 47% of consumers. The remaining 53% of households and businesses get their power from municipalities.

Councils are allowed to add an additional tariff to the electricity they supply to customers.