Property taxation and efficiency scores of metropolitan municipalities in South Africa

• Author: Jansen, A.
• DOI: https://doi.org/10.47348/AMTJ/V2/i1a3
• Published date: 28 March 2022
• Date: 28 March 2022
• Citation: (2022) 2 AMTJ 42
• Pages: 42-60

https://doi.org/10.47348/AMTJ/V2/i1a3 42

PROPERTY TAXATION AND EFFICIENCY SCORES OF

METROPOLITAN MUNICIPALITIES IN SOUTH AFRICA

FISCALITÉ FONCIÈRE ET SCORES D’EFFICACITÉ DES

COLLECTIVITÉS LOCALES MÉTROPOLITAINES EN

AFRIQUE DU SUD

MPOSTOS SOBRE A PROPRIEDADE E ÍNDICES DE

EFICIÊNCIA DOS MUNICÍPIOS METROPOLITANOS DA

ÁFRICA DO SUL

Ada Jansen*

Onesmo Kaiya Mackenzie†

Wynnona Steyn‡

JEL classif ication: H21, H71

ABSTRACT

Property taxation is a primary source of income for urban municipalities (metros),

particularly in South Africa. Property tax collection amongst metros varies, which

begs the question of whether differences in tax efficiency scores can be explained by

institutional fa ctors, or whether econom ic factors such as the size of th e tax base or the

ability to raise othe r revenues play a role. Th is article estimate s property tax ef ficiency

scores for eight South African metros and considers factors that affect these scores.

We use municipal data and apply the data envelopment analysis method to estimate

the efficiency scores for property taxation. This is followed by a Tobit regression to

evaluate the determinants of these scores. The results show that although metros

achieve relatively high efficiency scores, property tax collections can be improved.

In addition, economic indicators explain variations in eff iciency scores, but financial

management remains key to delivering municipal infrastructure.

Keywords: property taxation, metropolitan municipalities, tax efficiency

scores, DEA

RÉSUMÉ

La fiscalité foncière est la principale source de revenus des collectivités locales urbaines

(métros), particulièrement en Afrique du Sud. La collecte de la taxe foncière entre

les métros varie ce qui suscite la question de savoir si les différences dans les scores

d’efficacité foncière peuvent être expliquées par des facteurs institutionnels, ou si les

facteurs économiques tels que la taille de l’assiette fiscale ou la capacité de générer

d’autre revenus jouent un rôl e. Cet article fait une estima tion des scores d’effic acité de la

*Associate professor in the Department of Economics at Stellenbosch University: ada@sun.

ac.za.

† PhD student in the Department of Economics at Stellenbosch University: onymackenzie@

gmail.com.

‡ Economist, Macroeconomic Research Unit at the South African Revenue Service: wsteyn@

sars.gov.za.

(2022) 2 AMTJ 42

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PROPERTY TAXATION AND EFFICIENCY SCORES OF METROPOLITAN

MUNICIPALITIES IN SOUTH AFRICA 43

https://doi.org/10.47348/AMTJ/V2/i1a3

taxe foncière de huit métros sud-af ricains et analyse les fact eurs qui affectent ces sc ores.

Nous avons utili sé des données municipa les et avons appliqué un e méthode d’analyse de

l’enveloppe (DEA) d es données afin d’estimer les sc ores d’efficacité de la ta xe foncière.

Ceci est suivi d’une régression Tobit pour évaluer les déterminants de ces scores. Les

résultats mont rent que bien que les métros obtienn ent des scores relativement él evés, les

collectes de l a taxe foncière peuvent ê tre améliorées. De plus les i ndicateurs économiq ues

expliquent le s variations dans les score s d’effic acité, mais la gestion financière demeure

primordiale po ur la fourniture des infrastru ctures municipales.

Mots-clés: fiscalité foncière, collectivités locales (municipalités/communes)

métropolitaines, score d’efficacité fiscale, DEA

RESUMO

A contribuição predial é uma fonte primária de rendimento para os municípios

urbanos (áreas metropolitanas), particularmente na África do Sul. A cobrança de

impostos sobre a propr iedade varia entre as vári as áreas metropolitana s, o que levanta

a questão de saber se as diferenças de eficiência do imposto podem ser explicadas

por factores institucionais, ou se factores económicos tais como a dimensão da base

fiscal ou a capacidade de obter outras receitas desempenham um papel importante.

Este documento estima as pontuações de eficiência para o imposto predial em oito

áreas metropolitanas sul-africanas e considera factores que afectam estas pontuações.

Utilizamos dados municipais e aplicamos o método de análise do envelope de dados

(AED) para estimar as pontuações de eficiência para o imposto sobre a propriedade.

A isto segue-se uma regressão Tobit para avaliar os factores determinantes destas

pontuações. Os resultados mostram que embora as áreas metropolitanas alcancem

pontuações de eficiência relativamente elevadas, a colecta de impostos sobre a

propriedade pode ser melhorada. Além disso, os indicadores económicos explicam as

variações n os índices de eficiên cia, mas a gestão fina nceira continua a ser a chave pa ra

o fornecimento de infra-estr uturas municipais.

Palavras-chave: Impostos sobre a propriedade, municípios metropolitanos,

pontuação de ef iciência fiscal, AED

I INTRODUCTION

Urban municipalities are well known for their reliance on property

taxation as a local income source. This is mainly due to a higher level

of concentration of property wealth in urban areas which result in a

substantial property tax base (McCluskey & Franzsen, 2013, p. 159).

This is also the case in South Africa which has a three-tiered local

government str ucture comprising met ropolitan municipalities (metros),

district and local municipalities. Property taxation is collected by

metros and type B municipalities (that is, large towns, intermediate

cities, medium to small towns, and rural municipalities (Vacu, 2020,

p. 56). In absolute terms, metros collect a large amount of property

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