The term municipal property rates refer to the property tax levied at the local government level in South Africa. The Local Government: Municipal Property Rates Act of 2004, which is the national legislation governing the valuation of properties for rating purposes, prescribes that all properties on the valuation roll must be valued at market value as of the date of valuation. The market value is defined as “the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer.”
Given that the property rates are valued at market value, it has been argued that the value increases (i.e., due to zoning changes or infrastructure investment) are reflected to some extent in the property tax base. While this argument is potentially credible, it is equally important to note that such an effect (i.e., the prospect of recovering the actual unearned increment in value) is diluted by revaluation lags and the low effective rates of the property tax. This explains why the South African National and local government governments ought to or have turned to using other fiscal instruments to capture a portion of these land value increments to support the financing of public investments and public services.