Property Taxation and Efficiency Scores of Metropolitan Municipalities in South Africa
Author: Ada Jansen, Onesmo Kaiya Mackenzie and Wynnona Steyn
Affiliations: Associate professor in the Department of Economics at Stellenbosch University; PhD student in the Department of Economics at Stellenbosch University; Economist, Macroeconomic Research Unit at the South African Revenue Service
Source: African Multidisciplinary Tax Journal, 2022 Issue 1, p. 42-60
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 factors, or whether economic factors such as the size of the tax base or the ability to raise other revenues play a role. This article estimates property tax efficiency 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 efficiency scores, but financial management remains key to delivering municipal infrastructure.