Republic of South Africa

American Journal of Economics and Sociology, The,  Dec, 2000  by Godfrey R. A. Dunkley

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For some years there has been talk of a tax on the value of rural land. The argument has been advanced (by this writer among others) that the tax should be on the value of all privately-held land throughout the nation, and that it should be offset by a reduction in other taxes, particularly the 14 percent value added tax.

The Eighth Interim Report of the Katz Commission, under the heading, "The Implications of Introducing a Land Tax in South Africa," has, on the other hand, recommended that a land tax on rural land be implemented at the local government level only, and incorporated into municipal valuation rolls and rating.

This report discussed at length the use of market value compared to use value as the basis of valuation for farming land, holding that market value can be badly distorted by potential use value near thriving urban areas. It then recommended (current) use value, with the proviso that municipalities may apply to change to market value where more applicable.

Four different applications of a land tax were considered: 1.) It may be regarded as an additional tax that could have adverse effects upon farming and employment. 2.) It may be treated as an additional input cost when assessing income tax. 3.) It may be offset against income tax in the form of a minimum tax. 4.) It may be regarded as a provisional payment against tax payable. The Commission recommended that it be treated similarly to urban property rates, and constitute a deduction from income for income tax purposes.

Revaluation was recommended at intervals of no longer than five years, and preferably fewer where the cost is not disproportionate. The rating percentage was left flexible, but a guideline of two percent was suggested. The method of rating was discussed, but preference given to total value rating--i.e., rating based on the total value of a site, including both land and improvements.

A new valuation bill is scheduled to go before Parliament in the near future, but as of this writing (mid-March, 2000) the final draft had not yet been circulated for public comment. In October, 1999, a draft of this bill was aired, along with the Eighth Interim Report, at a public hearing held in a Parliament committee room in Cape Town, and chaired by a top official from the Department of Finance. Discussion papers were presented by various interested government departments and by private organizations such as the South African Agricultural Union, the Chamber of Mines, and sundry Chambers of Commerce. Presentations were made by Michael Jacques and Peter Meakin in favor of a land tax, and this writer took part in the discussions. The occasion was the first time that so many interest groups had been assembled to discuss aspects of a land tax.

There is much uncertainty as to the eventual system of rating to be adopted. Despite the fact that site-value rating has proved to be so successful and accounts for at least 85 percent of the country's total rates, it is unlikely to be legislated as the preferred system. The idea of a tax so broadly based as to include everybody in its net seems to weigh more heavily than do traditional concepts of equity as proportionate to either benefits received or ability to pay.