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 ( members) –110 large scale farmers associations (3 800 members)

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

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

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

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

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

1) Economic Considerations Implications 1Decreased land values = decr solvency and collateral = reduced ability to finance future investments and growth 2Decreased 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

1) Economic Considerations Implications (cont) 3For emerging farmers - lower land values makes access no easier because returns fallen by same amount 4Global competitiveness harmed if SA rates > trading partners and competitors - NB considering SA’s low level of farmer subsidies (cf Competitors with rates < 1% + high subsidies) KWANALU Submission on the Property Rates Bill

1) Economic Considerations Implications (cont) 5Harmful 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

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

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

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

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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