Taxing agriculture: an analysis of a possible land and capital gains tax

[摘要] English: The South African agricultural sector has experienced a lot of deregulations over the pastdecade. This process marked the end of state subsidies, favourable commercialagricultural policy and border control measures that, in the past, provided a safety net forcommercial farmers. Together with the transformation process, various policy changesoccurred and included the transformation of agricultural policy to the benefit of emerging,small and subsistence farmers. Commercial farmers lost their once held favourableposition and had to adapt in a globally exposed sector with very little state support.Today, the agricultural sector is challenged with the possible introduction of two newtaxes. Since 1992, a South African land tax has been under intensive investigation. Thisprospect gave rise to divergent opinions and arguments regarding the effect of a land taxon farm operating costs, farmland values, productivity, financing of local governmentsand other possible effects. During February 2000, the 30-year old possibility of a South African capital gains tax(CGT) gained momentum with the announcement by Minister Trevor Manuel that such atax will be imposed on April 1st 2001. The past incapacity of the tax administration tohandle CGT was supposedly overcome with the introduction of the New Income TaxSystem (NITS). SARS is confident that they can now handle the administration behind acapital gains tax. With the aim of obtaining some information with regard to the possible effects that a landtax may have, it was necessary to simulate the agricultural sector. Satisfying this needinvolved the use of static and dynamic linear programming techniques. Differentagricultural regions in South Africa were identified for data gathering and subsequentinclusion in the analysis. Specific case studies were chosen and are situated in theMpumalanga area, the Great Karoo area, the Olifants River irrigation scheme,Potchefstroom area, Bloemfontein area and the Kwazulu-Natal area. Various scenarioswere constructed and the effect of the land tax at different rates, different land tax basesand different deductibility rates from income tax were tested. With these results at hand itwas possible to provide some guidelines in terms of the effect of a land tax regardingdifferent implementation strategies. In terms of capital gains tax, a thorough literature study indicated that CGT reduces theamount of savings and investments. It furthermore discourages investment in risk-bearinginvestments such as agriculture. In the CGT analyses, a case study is used to determine theeffect of land and capital gains tax on the repayment ability of a farm.With the aim of obtaining some information with regard to the possible effects that a landtax may have, it was necessary to simulate the agricultural sector. Satisfying this needinvolved the use of static and dynamic linear programming techniques. Differentagricultural regions in South Africa were identified for data gathering and subsequentinclusion in the analysis. Specific case studies were chosen and are situated in theMpumalanga area, the Great Karoo area, the Olifants River irrigation scheme,Potchefstroom area, Bloemfontein area and the Kwazulu-Natal area. Various scenarioswere constructed and the effect of the land tax at different rates, different land tax basesand different deductibility rates from income tax were tested. With these results at hand itwas possible to provide some guidelines in terms of the effect of a land tax regardingdifferent implementation strategies.If a land tax is introduced on South African agricultural land, market values forfarmland would decrease, which implies lower solvency ratios. A land tax willfurthermore increase overhead costs, lead to higher financial risk, and result in theproduction of high-income products (but also higher risk products). The demand forshort-term credit will also increase. Levying a land tax simultaneously with a capitalgains tax, will lead to a decline in the repayment ability of farms as well as decreases inthe security value of the concerned land. The combination of these taxes will increasethe risk involved in agriculture.

[发布机构] University of the Free State