ARTICLES

 

The economic impact of a rural land tax on selected commercial farms in KwaZulu-Natal, South Africa

 

 

MAG Darroch; RB Lee; GF Ortmann

School of Agricultural Sciences and Agribusiness, University of KwaZulu-Natal

 

 

---

ABSTRACT

This study investigates the economic impact of a land tax implemented under the Local Government Municipal Property Rates Act No. 6 of 2004 on commercial farms using five case studies with five-year data sets in the Mtonjaneni and Umgeni municipal districts of KwaZulu-Natal. The case of farms' ability to pay annual rates between 0.25 per cent and 1 per cent of the value of improved land using real annual economic profit with and without rebates of up to 70 per cent proposed by the Department: Provincial and Local Government ranged from zero to five out of five years, with a mean of two out of five years. A 2 per cent land tax rate with such rebates could also be financed only in two out of five years on average. These results suggest that proposed annual land tax rates of 1.5 per cent (Mtonjaneni) or 1 per cent (Umgeni) on these specific farms would markedly reduce the incentive to invest in farm improvements.

JEL: H22, 71

---

 

 

“Full text available only in PDF format”

 

 

References

1 AGGARWAL, R. (2001) "Using economic profit to assess performance: A metric for modern firms", Business Horizons, (January/February): 55-60.         [ Links ]

2 BARNARD, C.S. & NIX, J.S. (1979) Farm Planning and Control (4^th ed.) Cambridge University Press: Cambridge.         [ Links ]

3 BARNSLEY, R. (2006) Personal communication Chairman: KwaZulu-Natal Agricultural Union, Dargle, South Africa.         [ Links ]

4 BARRY, P.J.; ELLINGER, P.N.; HOPKIN, J.A. & BAKER, C.B. (2000) Financial Management in Agriculture (6^th ed.) The Interstate Publishers & Printers: Danville, Illinois, USA.         [ Links ]

5 DARROCH M.A.G. (2003) "The potential effects of a land tax on agricultural land use, investment and land values in KwaZulu-Natal". A Report prepared for the KwaZulu-Natal Agricultural Union. Pietermaritzburg.         [ Links ]

6 DOLL, J.P. & ORAZEM, F. (1984) Production Economics: Theory with Applications (2^nd ed.) Wiley: New York.         [ Links ]

7 DEPARTMENT: PROVINCIAL AND LOCAL GOVERNMENT (DPLG) (2004a) "Local Government: Municipal Property Rates Act No. 6 of 2004", Department: Provincial and Local Government, Republic of South Africa. http://dplg.gov.za [Accessed on 30 May 2006].         [ Links ]

8 DEPARTMENT: PROVINCIAL AND LOCAL GOVERNMENT (DPLG) (2004b) "Guidelines on valuations for municipalities", Department: Provincial and Local Government, Republic of South Africa. http://dplg.gov.za [Accessed on 30 May 2006].         [ Links ]

9 DEPARTMENT: PROVINCIAL AND LOCAL GOVERNMENT (DPLG) (2004c) "Generic rates policy format", Department: Provincial and Local Government, Republic of South Africa. http://dplg.gov.za [Accessed on 30 May 2006].         [ Links ]

10 FAUL, M.A.; EVERINGHAM, G.K.; REDELINGHUYS, H.F. & VAN VUUREN, L.M. (1981) Financial Accounting, Butterworth: Pretoria.         [ Links ]

11 FRANZSEN, R.C.D. (1995) "Viability of a rural land tax in South Africa", Property Management, 13(3): 21-42.         [ Links ]

12 FRANZSEN, R.C.D. (2000) "Local government and property tax reform in South Africa", http://www.lincolninst.edu/pubs/pub-detail.asp?id=299 [Accessed on 13 July 2006].         [ Links ]

13 HAWAWINI, G.; SUBRAMANIAN, V. & VERDIN, P. (2001) "Is performance driven by industry- or firm-specific factors?", Working Paper, INSEAD Business School, Fontainebleau, France.         [ Links ]

14 KAY, R.D. & EDWARDS, W.M. (1999) Farm Management (4^th ed.) McGraw-Hill: New York.         [ Links ]

15 LEE, C.R. (2007) Personal communication, Legal Representative for the KwaZulu-Natal Agricultural Union, Dargle, South Africa.         [ Links ]

16 LINDHOLM, R.W. (1972) "Twenty-one land value taxation questions and answers", The American Journal of Economics and Sociology, 31(2):153-164.         [ Links ]

17 MEPHAM, M.J. (1980) "The residual income debate", Journal of Business Finance & Accounting, 7(2): 183-199.         [ Links ]

18 NIEUWOUDT, W.L. (1990) "Efficiency of land use", Agrekon, 29(4): 210-214.         [ Links ]

19 NIEUWOUDT, W.L. (1995) "The impact of a land tax on future investments: A note", The South African Journal of Economics, 63(1): 85-90.         [ Links ]

20 O'HANLON, J. & PEASNELL, K. (2004) "Residual income valuation: Are inflation adjustments necessary?", Review of Accounting Studies, 9: 375-398.         [ Links ]

21 OLSEN, K.D. (2004) Farm Management: Principles and Strategies Iowa State Press: Iowa, United States of America.         [ Links ]

22 ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD) (2006) Agricultural policies in OECD countries at a glance: 2006 Food, Agriculture and Fisheries Directorate, Organization for Cooperation and Development: Paris, France.         [ Links ]

23 ORTMANN, G.F. (1987) "Land rents and production costs in the South African Sugar Industry", The South African Journal of Economics, 55(3): 249-258.         [ Links ]

24 PASOUR, E.C. (1973) "Real property taxes and farm real estate values in North Carolina", American Journal of Agricultural Economics, 55: 549-556.         [ Links ]

25 PASOUR, E.C. (1975) "The capitalization of real property taxes levied on farm real estate", American Journal of Agricultural Economics, 57: 389-397.         [ Links ]

26 SOUTH AFRICAN DEPARTMENT OF AGRICULTURE (2006) "Price indices of machinery, trucks and implements", http://www.nda.agric.za [Accessed on 8 March 2007].         [ Links ]

27 SOUTH AFRICAN GOVERNMENT GAZETTE (2005) Gazette No. 27720, Government Printer: Pretoria.         [ Links ]

28 SOUTH AFRICAN REVENUE SERVICE (2006) "Income tax tables 2001-2006", http://sars.co.za [Accessed on 5 March 2007].         [ Links ]

29 STATISTICS SA (2006) "The consumer price index and annual inflation rate on a monthly basis", http://statssa.co.za.com [Accessed on 23 November 2006].         [ Links ]

30 THE WITNESS (2007) "Umgeni lowers rates randage", The Witness 2 June 2007: 4.         [ Links ]

31 VAN SCHALKWYK, H.D.; VAN ROOYEN, C.J. & JOOSTE, A. (1994) "Possible effects of an agricultural land tax in South Africa", Agrekon, 33(4): 206-211.         [ Links ]

32 WIKIPEDIA (2006) "KwaZulu-Natal", http://en.wikipedia.org/wiki/KwaZulu-Natal [Accessed on 10 November 2006]        [ Links ]