Guidelines for Municipal Trading Services

Guidelines for Municipal Trading Services

• 08 October 2024
• Regulatory Compliance and Legislation
• South African Accounting Academy

Summary:

National Treasury has issued guidance for municipal trading services.

Article:

Trading services are services for which consumption or service charges are levied: electricity, water and sanitation, and solid waste management. Tariffs should be determined and managed with the intention to make a surplus (profit) on the delivery of the services. The surplus (after full costs) is required to provide firstly, for capital infrastructure investments and other business improvements required for long-term viability; and secondly, for contributions to the rates and general account.

This guidance consists of the following 6 documents:

• USDG 2024-5 Guidance Note
  • The purpose of this publication is to provide guidance to metropolitan municipalities preparing for the introduction for trading services (starting in 2024/25 with water & sanitation) of a performance-based incentive grant component of the Urban Sector Development Grant, as set out in the Division of Revenue Bill, 2024.
• Water Strategy resource document
  • This document has been developed as a resource document to support a turnaround in the water business. The intention is to further develop and improve this resource over time, based on experience gained.
• Electricity Strategy resource - Annexure B to GN1
  • This document has been developed as a resource document to support metropolitan municipalities to turnaround and improve their electricity businesses. It is based on a similar document developed to support institutional turnarounds in the metro water businesses. This resource document is not static and will be enhanced over time, based on experience and learnings implementing the reforms.
• USDG MTSR Guidance Note 2
  • The purpose of this Metro Trading Services Reform Guidance Note 2 is to provide further guidance to metropolitan municipalities preparing for the introduction for trading services of a performance-based finance incentive component of the Urban Settlements Development Grant, as set out in the Division of Revenue Bill, 2024, page 232, with reference to allocations set out in Schedule 4, Part B, page 44. It follows the earlier Guidance Note issued on 1st April 2024, now referred to as Guidance Note 1.
• USDG Guidance Note 3 - MTSR Institutional arrangements
  • To provide further guidance to metropolitan municipalities on institutional arrangements for turning around metro trading services.
• VAT Ref Guide for FDFP
  • The purpose of this reference guide is to provide certainty to taxpayers on the VAT treatment of FDFPs implemented by an implementing agency. This reference guide was published by SARS and provides information and guidelines regarding the value-added tax (VAT) treatment of foreign donor funded projects (FDFPs), and is divided into 5 parts.

Click here to access and download the documents:

https://mfma.treasury.gov.za/Guidelines/Documents/Forms/AllItems.aspx?RootFolder=%2fGuidelines%2fDocuments%2fTrading%20Services&FolderCTID=0x0120004720FD2D0551AE409361D6CB3E122A08

Relevance to Auditors, Independent Reviewers & Accountants:

• The MFMA is yet another piece of legislation that your relevant national and provincial departmental clients must comply with, and which you must assess compliance with.  If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
• As an auditor and independent reviewer, you need to consider and assess compliance of municipal entities with the MFMA.
• Practitioners should be aware of the latest guidance that has been published by National Treasury.

Relevance to Your Clients:

• A municipal entity must comply with the MFMA.
• Municipal entities should be aware of the latest guidance that has been published by National Treasury.

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