Fictitious tax on property developers

Font size: Decrease font Enlarge font
Fictitious tax on property developers

Commercial property developers in eThekwini have been asked to shell out even more, including a large new development ‘tax’ - a tax that the municipality has ‘invented’ according to property owners who claim it is illegal.

The South African Property Owners Association (SAPOA) has confirmed that it will challenge the imposition of this charge which is having a devastating effect on the development of property.

“Being investor-unfriendly and making it costly to undertake new property investment in the Durban area is one thing. Levying unlawful taxes is quite another,” says SAPOA CEO Neil Gopal.

eThekwini Municipality is already the most expensive city in which to undertake property development and property ownership – by over 30% on average – compared to Johannesburg and Cape Town, according to research conducted by SAPOA and Trade & Investment KZN.

This is largely as a result of the questionable development charge –introduced in the city’s 2010/11 budget for multi-unit developments, described as a ‘development surcharge for infrastructure’.

The problematic taxes, described by the municipality in its 2011/12 budget as a “development surcharge for impact on infrastructure” have now been implemented at R16,500 per 100m2 of gross lettable commercial area developed and R14,227 per unit on multi-unit developments.

But Gopal points out that infrastructure is a municipal asset, not a service.

He argues that unless the link is demonstrated between the function or service concerned and the sum charged, the charge is a tax.

“Yes, the on-going maintenance of these assets is a service, for which a charge may be levied as a municipal charge. But there is no connection between this ‘impact on infrastructure’ charge and a service provided, so it does not qualify as a rate or surcharge on a service fee. Therefore it can be only considered as a tax, levy or duty,” says Gopal.

Gopal explains that in order for the taxes to be lawful, they would have to be authorised by national legislation as required by the constitution. They are not.

“It is plainly improper and unauthorised for a municipality to simply introduce a tax under the guise of a service fee,” says Gopal. “eThekwini Municipality does not have the authority to levy this tax, but has it been doing so regardless - and falling foul of legislation.”

The eThekwini Municipality recently published a draft Development Charges Policy which is proposed to replace the existing Development Surcharge. Seeking clarity, SAPOA attended a public meeting held earlier this month. “eThekwini municipality indicated that it intends to depart materially from many of the key aspects of the national legislation policy framework, including the constitution,” says Gopal. He notes that the answers given for many questions revealed enormous confusion regarding critical aspects of the eThekwini policy.

“It is incomplete, totally impractical and the present imposition of tariff charge is unlawful,” notes Gopal. “SAPOA will also oppose the municipality’s new policy should it not be amended as it has the same legislative flaws that the Development Surcharge has.” In the interim SAPOA will continue to work with the Municipality towards trying to find appropriate and viable solutions to the challenge of bulk infrastructural provision by the public sector.

He points out that the sad reality is that this unlawful eThekwini tax, until properly resolved, will send development elsewhere and kill it locally. “Already, a few SAPOA members have decided to not proceed with affordable housing and other schemes due to this tax”

SAPOA, a section 21 company, promotes and protects the commercial interests and activities of its members. SAPOA’s membership consists predominantly of commercial property owners and related enterprises. It represents 90% of all commercial property owners in South Africa. One of its goals is to ensure that businesses and commercial enterprises are dealt with fairly and justly by government.




Enter your e-mail address below using Lowercase.

Home in 1 | Leading Supplier to Events, Catering & Hospitality Industry