KwaZulu Natal Agricultural Union KWANALU

1
Introduction

• KwaZulu Natal Agricultural Union (KWANALU)
• Single, autonomous fully representative
  organisation for all farmers in KZN
• Amalgamation of
• KwaZulu Natal Farmers Union
• Natal Agricultural Union
• National African Farmers Union (Madadeni Branch)
• South Coast Indian Farmers Association
• Membership
• 500 small scale farmers associations (28 000
  members)
• 110 large scale farmers associations (3 800
  members)

2
Current Situation

• KWANALU supports implementation of PRB - lack of
  consistency at Municipal level in terms of
• Implementation process
• Property Valuations
• Rand ratage (tax rate)
• Rebates for agricultural land
• Concern over impact of property rates on
  viability of the agricultural sector
• Independent research into impact of rates on farm
  land values, investments in fixed improvements
  and agricultural productivity.

KWANALU Submission on the Property Rates Bill
3
Focus of presentation

• Economic Considerations
• Impact of property rates on property values,
  investments in agriculture and productivity
• Valuation of Agricultural Property
• specific considerations relevant to the valuation
  of agricultural land for rating purposes

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Introduction
• Property rates based on land values is a land tax
• High of capital invested in agriculture is
  invested in land (cf industry which invests in
  plant, equipment and human capital)
• Therefore land tax has large impact on returns in
  the agricultural sector.

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Effect on farm land values
• Property values are a function of expected
  returns
• Tax reduces the expected return to the owner,
  which will result in reduction in land value
• Research confirms that returns to land are 5
  of land value, therefore
• 1 tax 20 reduction in expected return
• 20 reduction in land value
• (cf Katz commission 1 tax -6.17 decrease in
  value)

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Effect on investment incentives
• Tax reduces returns to owner on improvements made
  to land (e.g. invest in irrigation - land value
  increases - tax increases - decreases return to
  investment in irrigation)
• Decreased return on investment results in
  decrease in supply of the improvements (e.g. less
  investments in irrigation and conservation
  structures)
• Higher the tax, the smaller the incentive to
  invest

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Implications
• Decreased land values decr solvency and
  collateral reduced ability to finance future
  investments and growth
• Decreased incentive (and ability) to invest
  decr productivity and rate of increase in food
  production - LR increase in food prices

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Implications (cont)
• For emerging farmers - lower land values makes
  access no easier because returns fallen by same
  amount
• Global competitiveness harmed if SA rates gt
  trading partners and competitors - NB considering
  SAs low level of farmer subsidies
• (cf Competitors with rates lt 1 high
  subsidies)

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Implications (cont)
• Harmful to Strategic Plan for SA Agriculture
  which seeks to enhance productivity through
  global competitiveness and lower overall
  costs of production ... including reduction of
  taxes on inputs
• Decrease wealth creation in rural areas
• Decrease sustainability of employment in
  agriculture
• Decrease FOREX earnings as competitiveness ?
• Decrease farming efficiency due to ? investments

KWANALU Submission on the Property Rates Bill
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1) Economic Considerations

• Recommendation
• Maximum property rate of 0.5 of the improved
  value of agricultural land
• Undertake detailed cost-benefit analysis to
  assess cost of collection/administration vs
  revenue collection

KWANALU Submission on the Property Rates Bill
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2) Property Valuations

• Uniform valuation methodology required to ensure
  equity
• PRB clear that valuations should be based on
  Improved Value
• Not clear on treatment of standing crop
• Complications with standing crop
• can be worth more than the land fixed imp
• value fluctuates over the season (pre / post
  harvest)
• Is not a fixed improvement

KWANALU Submission on the Property Rates Bill
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2) Property Valuations

• Support valuation based on improved value
• Definition of improved value specifically
  exclude standing crop (similar to exclusion of
  underground mining buildings and structures)
• Recommendation
• (1) expand definition of Improvements to
  exclude standing crop
• (2) provide guidelines to Municipalities to
  ensure equitable valuation procedure

KWANALU Submission on the Property Rates Bill
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Conclusion

• Section 229 of the Constitution empowers
  Municipalities to impose rates, that do not
• materially and unreasonably prejudice national
  economic policies..
• Clause 3(1)(a) of the PRB requires that
• A rates policy must treat persons liable for
  rates equitably
• Contend that rates in excess of 0.5, and the
  absence of clear valuation guidelines, likely to
  violate the above two principles

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Thank you