SA Government Retains Control Over Local Taxes

by Robert Lee, Tax-News.com, London

24 July 2003

According to reports this week, the South African national treasury intends to keep a tight grip on provincial governments' ability to impose their own taxes, fearing that too many local taxes will increase the overall tax burden and distort markets.

Responding to a proposal in Gauteng to impose a congestion tax on the purchase of cars, Ismail Momoniat, who is in charge of intergovernmental finances, said that whilst legislation passed in 2001 allows provincial governments to pass their own tax laws, parliamentary approval, and a green light from the Treasury and the Cabinet are necessary in order to implement changes. In addition, any new tax proposals would have to be put before the intergovernmental budget council and be the subject of a feasibility study before parliament could give the go ahead, he revealed.

These measures have been placed within the legislation so that a new tax passed in one province cannot automatically be imposed in other provinces. Observers have also suggested that the treasury wants to avoid a situation where one province has a more favourable tax regime than its neighbour, which would create distortions in investment.

Momoniat also indicated that the Municipal Finance Management Bill, intended to provide oversight of local finances and manage the possible introduction of municipal bonds, and the Municipal Systems Amendment Bill, which deals with other financial management issues, are both expected to be approved by parliament by the end of next month.

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