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 t axation is a pri mary source of in come for urban mu nicipalities (me tros),

particula rly in South Afri ca. Proper ty tax collection amongst metros var ies, which

begs the question of w hether diff erences in ta x effic iency score s can be explai ned 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 S outh Africa n metros and conside rs factors tha t affect the se scores.

We use municipal data and apply the data en velopment analysis method to estimate

the efficiency sco res for proper ty taxation. T his is followed by a Tobit regre ssion to

evaluate the det erminants of these scores. T he results show t hat although metros

achieve relat ively high eff iciency sc ores, property tax collecti ons can be improv ed.

In addition, econo mic indicator s explain vari ations in eff iciency scores, but fi nancial

management r emains key to de livering muni cipal infrastr ucture.

Keywords: property taxation, metropolitan municipalities, tax efficiency

scores, DE A

RÉSUMÉ

La fiscalité foncière e st la princip ale source de reve nus des collect ivités local es urbaines

(métros), particulière ment en Afriq ue du Sud. La colle cte de la taxe fon cière entre

les métros varie c e qui suscite la que stion de savoir si les dif férences dans les scores

d’efficac ité foncière p euvent être expli quées par des fac teurs institut ionnels, ou si les

facteurs éc onomiques tel s que la taille de l’assiette f iscale ou la c apacité de gén érer

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 ré gression Tobit pour évalue r les détermi nants de ces sco res. 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: f iscalité fonc ière, collectiv ités locales (municipalités/communes)

métropolitaines, score d’effica cité fiscale, DEA

RESUMO

A contribuiç ão predial é uma font e primária d e rendimento para os mun icípios

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 s e as diferença s de efici ência do imposto po dem ser explic adas

por factores in stitucionai s, ou se factores ec onómicos tais c omo a dimensão da base

fiscal ou a capacidade de obt er outras receit as desempen ham um papel impor tante.

Este document o estima as pontuações de ef iciência pa ra o imposto predial em oito

áreas metropol itanas sul-af ricana s e considera fact ores que afecta m estas pontua ções.

Utilizamos dados municipais e aplica mos o método de análi se do envelope de dados

(AED) para estima r as pontuaçõe s de eficiê ncia para o imposto sob re a propriedad e.

A isto segue-se uma reg ressão Tobit para avaliar os fact ores determi nantes desta s

pontuações. O s resultados mostram que e mbora as áreas me tropolitanas a lcancem

pontuações d e eficiên cia relativame nte elevadas, a col ecta de impostos sobre a

propriedade p ode ser melhorada. Além disso, os indicadore s económicos ex plicam as

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

o fornecimen to de infra-estr uturas municipais.

Palavra s-chave: Impostos sobre a propriedade, municípios metropolitanos,

pontuação de ef iciência fiscal, AE D

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 proper ty wealth in urban areas which result in a

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

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

government str ucture comprising met ropolitan municipalities (metros),

district and local municipalities. Property tax ation is collected by

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

cities, medium to smal l towns, and r ural municipalities (Vacu, 2020,

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

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