What’s the difference between simple and compound interest? When it comes to property rates and taxes, about R8 million, according to a case currently before the Johannesburg High Court.
Court papers claim the Tshwane metro is charging R8 million interest on a R1.5 million property rates debt.
Quite apart from the common law in duplum principle, which says unpaid interest can never exceed the capital owing on a debt, questions have been asked how interest on the debt could possibly have exploded to about R8 million – more than six times the capital amount.
Municipal Systems Act
The original rates debt was R1.5 million, but with interest applied (supposedly) over a two-year period – which is the period prescribed under the Municipal Systems Act for the issuance of a rates clearance certificate – that figure ballooned to R9.5 million.
What is not clear is how it ballooned.
The metro’s own policies mandate simple interest on rates arrears over a period of two years, but even compounding the interest does not arrive at this figure.
Tshwane’s policies require simple interest to be charged at prime plus 1%.
All this is detailed in a dispute between the Tshwane metro and insolvency practitioner Theo van den Heever, now before the Joburg High Court.
Tshwane owned R1.85m
The dispute over the rates clearance figures has held up the transfer of 28 properties involved in the liquidation of a company called Thumos Properties 4.
According to the court documents, the amount owed to the metro is R1.85 million, yet Tshwane insists it is owed R7.7 million, and later R8.08 million – which includes interest over 27 months.
The figures claimed by the city are constantly changing and make no sense, claims Van den Heever.
He adds that Thumos cannot pay what the city was demanding as this would prejudice creditors in the liquidated company.
This dispute over simple versus compound interest has wider ramifications.
Wider impact
The properties were sold to a company called Aeterno, but that sale fell through because of the time delays, and the company is now suing Thumos for damages.
Van den Heever addressed numerous letters to the city, most of which appear to have been ignored.
When a reply came on 20 June 2025, it came with an attached spreadsheet showing an amount owing of R8.08 million for the 24-month period to 30 May 2025. This was far in excess of the initial amount claimed of R1.6 million (for a period of 27 months).
The liquidator needs a rates clearance certificate before sale and transfer of the Thumos properties can take place.
Metro’s calculation questioned
When the Tshwane metro sent through the rates clearance figures for each of the properties, they were between four to five times the capital amount owing on the different properties.
“I have addressed letters to [Tshwane] since at least May 2024, but my letters have either not been answered, or wrong figures were again furnished by the respondent,” deposes Van den Heever.
City representatives were questioned about how they came to their rates calculation during an inquiry into the insolvency, but they still did not furnish the correct figures, according to Van den Heever’s affidavit.
He did his own calculation using simple interest – as required in Tshwane’s own policies – and came to a figure owing of R1.85 million, which included interest.
City’s response
Deposing for the city was Lesiba Thupudi, acting head of revenue recovery and collection, who argues that Van den Heever is asking the court for far more than rates clearance certificates.
What is being asked of the court, says Lesiba, is “a suite of declaratory and mandatory orders intended to bind the City to the liquidator’s own computations and methodology, and to compel, the City to issue clearance certificates on an ongoing basis, upon demand”.
Thupudi denied that the city’s rates clearance figures were wrong and that Van den Heever had been supplied spreadsheets on which its calculations were based.
The city further directed him to pursue any challenge to these figures to the appropriate dispute resolution mechanisms provided for in the (Municipal) Systems Act rather than direct enquiries to the master of the court.
But no such dispute resolution mechanism exists, responds Van den Heever in his replying affidavit, adding that no one is disputing the actual charges for services and levies.
Interpretation of policy
What is disputed is Tshwane’s interpretation of its own policy to allow it to charge compound interest.
Based on the city’s written policy for interest calculations, the interest allowable on the charges is R343 756. Using simple interest, it is mathematically impossible to arrive at the city’s claimed figure of nearly R8 million on a debt of R1.5 million.
Van den Heever says the city either lacks understanding of the difference between simple and compound interest, or is failing to diligently execute its mandate.
The fact that the city’s “system” spat out a rates and clearance figure does not mean it should be taken as correct, as the system is only as good as the people who programme it.
There seems little ground for agreement between the two sides, which suggests this case will have to go to trial for resolution.
This is a case that should interest the millions of Tshwane residents receiving billing statements each month, particularly those in arrears and being subject to interest charges.
This article was republished from Moneyweb. Read the original here.
