Property Rates Bill: hearings

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Cooperative Governance and Traditional Affairs

14 May 2003
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Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
15 May 2003
LOCAL GOVERNMENT: PROPERTY RATES BILL (B19 2003): PUBLIC HEARINGS
Chairperson:
Mr Y Carrim (ANC)

Documents handed out:
Agri South Africa Submission
Forestry South Africa Submission
Submission from Mr G Bartlett
Kwanala Property Rates Task Team Submission
Grain South Africa Submission
Transvaal Agricultural Union Submission
National African Farmers Union Submission (Appendix)

SUMMARY
The National African Farmers Union (NAFU) supported the Bill unreservedly. It welcomed the access to free basic municipal services anticipated by emergent farming communities as a result o increased local government revenues likely to be generated by the new property rates. Most other submissions endorsed the spirit of the Bill. However, concerns were expressed about the economic implications for commercial farmers of what was effectively a land tax. The capacity of local government to utilise revenue generated for efficient service provision was also questioned.

MINUTES
Agri South Africa (Agri SA) submission
Mr Chris Cloete advised members that Agri SA supported the rationale of the Bill in principle. However, a property rate on agricultural land was effectively a land tax, which had serious implications for farmers.

Mr Johan Pienaar (Director: Economics & Trade, Agri S A) questioned the rationale behind the imposition of a land tax and, especially, property rates on agricultural land. In the view of Agri S A, a property rate was not an effective way of redressing discriminatory legislation or creating an efficient market for agricultural land. The agricultural sector already faced numerous extraordinary financial challenges stemming from mechanisms in place in developed countries to protect their agricultural sectors. A more holistic approach was needed to counteract the negative financial impact of these mechanisms on South African agriculture and the proposed property rate needed to be viewed in that context.

Transvaal Agricultural Union (TAU) submission
Mr Ben Murray (Chairperson: TAU) presented a submission expressing TAU's opposition to the Bill. He noted that a tax on agricultural land, a scarce production factor in South Africa, will not meet the basic principles, such as equity, simplicity and certainty as well as cost-effectiveness of a sound tax system. As the result the farmers would be forced to lay more workers, as there is a high level of insolvency that would be encountered due to the change in property value. Therefore any proposal to tax agricultural lands should be considered with open minds as that has the effect of damaging its effect on the country's economy due to the unique character of agricultural lands, which tremendously differs from other lands.

National African Farmers Union (NAFU) submission
Mr Motsepe Matlala (President: NAFU) presented a submission expressing NAFU's unreserved endorsement of the Bill in its totality. He noted that NAFU would like to contribute to the development of the country and thus feels that the transformation process cannot be held back in anyway. Therefore they are of the opinion that beneficiaries would not be affected in any means by the legislation and thus it would be proper for all landowners to pay their tax dues since that would immensely contribute to the improvement of disadvantaged farmers. Further noted that NAFU proposed that the Bill should be used as a vehicle in order to create incentives for the development of all agriculturists. That is why it becomes important for the government to look keenly at the issue of the absent owners and foreign owners, since that clearly deprive the locals of the opportunity to become farmers in their right. He said that NAFU acknowledged the important role that can be play by the traditional leaders especially when it comes to the cultural lands and therefore the Bill need to be simplify and communicated to the people on the grass root level, especially those in the rural areas, so that they can also appreciate its importance.

KwaZulu-Natal Agricultural Union (KWANALA) submission
Mr Graham Moor presented a submission focusing on the economic implications of a land tax for agricultural returns, recommending amendments to address KWANALA's concerns.

Grain South Africa (GSA) submission
This submission articulated GSA's opposition to the application of property rates to previously non-rateable agricultural land, which could impact negatively on the sustainability of crop production in South Africa and compromise national food security.

Forestry South Africa (FSA) submission
Mr Roger Godsmark (Assistant Director: FSA) presented a submission focusing on the implications of property rates for the industry's viability and international competitiveness, recommending industry-specific amendments based on improved rather than market land values.

Submission from Mr G Bartlett
Mr George Bartlett presented a submission highlighting the implications of the Bill for land evaluation. He cited examples of ongoing disputes between farmers and municipalities, making recommendations on options for addressing the issues concerned.

Discussion:
The Chair stated the Committee's commitment to ongoing interaction with interested parties on the Bill, assuring those present that more research would be conducted on key issues before the Bill was passed into law. He undertook to forward the documents concerned to the Durban Municipality for a response on issues raised by Mr Bartlett.

Mr J Ngubeni (ANC) noted that, since farmers live in municipal areas, they benefit from municipal services and use municipal structures in their day-to-day business. On this basis, he asked whether it would be appropriate to exclude them from paying property rates.

The Chair acknowledged the importance of the agricultural sector to the country's economy and assured them that Government would not do any thing to jeopardise this. Nevertheless, he appealed for common sense and goodwill in dealing with this matter, especially in view of South Africa's socio-economic development imperatives. Objections based on pure technicalities should therefore be avoided. Submissions should, instead, focus on substantive issues such as the Bill's potential to impact negatively on the export market.

Agri South Africa's representative asked why NAFU supported the Bill in its totality. He also asked in what form NAFU envisaged free basic resources being provided to the agricultural community.

Mr Matlala observed that imbalances between white and black farmers still need to be addressed. Under the old dispensation, government had subsidised white farmers who had often not been required to fulfil their tax obligations. These farmers should now be required to pay tax as a way of contributing towards the development of previously disadvantaged communities and the country as a whole.

Ms J Manche Deputy Director: Department of Provincial and Local Government (DPLG), said that the Department had made a point of engaging regularly with all interested parties on the Bill. Local government provided a wide range of services to rural and agricultural communities and a property rate was internationally recognised as being one way of collecting revenue for these services. Acknowledging the economic and commercial importance of the agricultural sector, it should nevertheless not expect special treatment as compared to other commercial sectors. There were fundamental differences between the concepts of improved value and market value. Also, land value was affected by surroundings, opportunities for commercial usage and market demand. The Bill included checks and balances aimed at protecting commercial interests. In effect, it sought to remove distortions associated with land so that its true commercial value could be optimised.

Ms S Botha (DP) noted that farmers had survived long after the government subsidy had fallen away. It was incorrect to claim that the Bill would assist them in this regard. Instead, farmers should be told exactly what their taxes were being used for and whether free services would also be available to them as in the case of other communities.

Mr S Mshudulu (ANC) noted that policies regarding free basic services had already been clearly stated by Government. The real issue was infrastructure. He then asked what Agri SA opposed in Clause 25 of the Bill.

Agri South Africa responded that the legality, not the viability, of Clause 25 was at issue.

Mr Dube, Department of Provincial and Local Government (DPLG), said that the provisions of Clause 25 and those of Clause 26 were linked and that Sub-clause 2 of Clause 26 had been inserted with the aim of facilitating dialogue between the owner of the property and its user.

A member suggested that this should be understood in the light of a residential home no longer occupied by the owner, who was nevertheless still required by law to pay rates.

Rev A Goosen (ANC) said that it was not the purpose of the Property Rates Bill to prescribe how municipalities should use their revenue. Furthermore, paying taxes should not affect productivity.

A member commented that the location of property should always be taken into account.

Ms Manche emphasised that the objective of the Bill was to eliminate distortions in land market value so that the true market value of land might be realised or improved. Ideally, municipalities should apply the same rate across the board but historical imbalances had made it necessary to single out one sector. Local government was required to serve the needs of the community rather than individual interests. It was important to bear in mind that land usage tended to determine property rates.

Mr R Marten (South African Institute of Valuers) observed that, in terms of an Ordinance and related regulations introduced in 1997, the valuation of agricultural lands in the Cape was based on market value. Rebates were granted at the discretion of the municipalities concerned.

In summary, the Chair noted that the integrity and capacity of municipalities appeared to be a concern that might need to be accommodated in regulating the Bill. Educating local government on the provisions of the Bill prior to implementation could help to address this. Affected parties should nevertheless present substantive, not technical, arguments in respect of their concerns, particularly on the issue of exclusions. In attempting to accommodate submissions, drafters would focus on areas of common purpose and consensus. Where necessary, further research would be undertaken to ensure a proper understanding of the issues entailed.

Mr Pienaar commented that more clarity on the implications of land evaluation for the agricultural sector would help farmers to understand the Bill better. Although the agricultural community should not seek to be seen as distinct from other commercial sectors, prevailing global market conditions should not be overlooked.

Mr Moor assured members that concerns raised in response to the KWANALA submission had been noted.

Mr Godsmark invited members to contact the FSA office should they require more information on the submission concerned.

Mr Marten noted concerns around the implications of the Bill for rural and agricultural communities, suggesting that these merited further attention.

Ms Manche again emphasised that distortions associated with agricultural land had resulted in market inefficiencies, which the Bill sought to address.

The meeting was adjourned.

Appendix : NAFU Submission

National African Farmers Union of South Africa Submission on Local Government: Property Rates Bill

National African Farmers Union of South Africa (NAFU) written inputs in support of oral representation to the Portfolio Committee on Provincial and Local Government

INTRODUCTION
NAFU supports the implementation of this bill insofar as it represents a mechanism to ensure that property owners contribute appropriately to the infrastructure services that they are beneficiaries of. NAFU furthermore believes that in the agricultural sector there are significant imbalances that continue to exist as a result of previous mechanisms that favoured the current White commercial farmers. The mechanisms that created these imbalances have to a large degree been abolished and the potential for eradicating distortions has dramatically diminished. NAFU furthermore believes that in view of the fact that this bill is subject to a constitutional proviso that prevent municipal authorities from operations that "unreasonably prejudices national economic policies, economic activities across municipal boundaries…" that specific attention should be focused on not undermining the provisions of the Agriculture Sector Plan that are aimed specifically at alleviating these imbalances.

It is extremely important for NAFU that the implementation of this bill does not exacerbate the difficulties that still faced by emerging Black farmers.

Clearly one of the major constraints facing the Black farmer today is the issue of acquiring land and then developing that land to a commercially viable level of agricultural operation. There are many obstacles in the way for these emerging farmers as it is and additional burdens will make it impossible for them to gain a foothold in the commercial agricultural sector.

GENERAL COMMENTS
Exemption Periods
NAFU supports the way in which government has provided in this bill that rates will not be levied against the beneficiaries of land in terms of the land reform programme - this will allow that sector of the emerging Black farming community to establish operational viability without the additional burden of property tax. NAFU is concerned though by the fact that there are many Black farmers who are today battling to make inroads into commercial agricultural activities who are not and will never be the beneficiaries of the land reform programme.

NAFU maintains that all Black farmers and Black Economic Empowerment initiatives into the agricultural sector must be made exempt from property tax levies for a period of up to 20 years. We also believe that the mechanism of exemption should be implemented in a manner that would allow new entrants the benefit of a ten-year staggered starting period. In this way all new entrants who embark on agricultural will have the same benefit period.

Places of Worship and other Public Benefit Organisations
NAFU supports current public debate that Public Benefit Organisations (PBO) represent the most efficient mechanism available for the delivery of critical social services to the community. Imposition of property rates taxes on these organisations will diminish their ability to render these services and mechanisms that have a direct impact on the cost structures of government organisations will be required to render these services.

In the case of places of worship it must be recognised that with this bill the majority of members of the congregation of such places of worship will already pay some form of property taxes thus making a contribution to the provision of basic services to their respective organisations.

Rate Structures
Provision of property categories makes it possible for the bill in its current form to take a specific view to agricultural properties. NAFU concurs with the contention that rates of up to 2% of improved value of properties are extremely high in comparison to international norms. It must be kept in mind that agriculture must compete in international markets. All other sectors of the economy implement special measures that enhance international competitiveness. Care must be taken that this bill does not undermine the ability of the South African agricultural sector to compete and thus remain sustainable viable.

It is this very international character of the agricultural sector that makes it a national issue that NAFU believes makes it critical that property rates taxes on agricultural properties must be directly controlled by uniform structures, mechanisms and processes from a central government level. The impact on agriculture by allowing room for diverse interpretation and implementation of this bill at regional level on a national resource will lead to non-productive and negative dynamics in the sector.

NAFU believes that the concept of taxing agricultural property on 'improved value' will not only require very clear definition of criteria for attaching values to a broad range of possible improvements that can be made in the agricultural environment, and if the process of acquiring a certified valuation of agricultural land is anything to go by at the moment then we believe that all authorities will be hard pressed to achieve any level of reliability with regard to the agricultural sector if the basis for evaluation is improved value.

In this regard it is also evident that there is as yet no clarity on the issue of whether crops and crop production related consumables in stock will be exempt from or included in the concept of 'value'.

Clearly the tax structure of South Africa as dialogued in the Katz Commission Inquiry does not adequately relate to the dynamics of taxation of agricultural land or how this form of tax will impact on the broader management of the total tax base.

Regional Services Levies
It is not possible to assess the overlap (double taxation) impact of this bill on agricultural properties until its specific implementation on a standadised national basis becomes more visible. NAFU believes that insofar as agricultural land is concerned there are still many possible interpretations that could result in very diverse implementation across regional boundaries of this bill.

Valuation Roles
If maintenance of the provided valuation roles are to be implemented on an equitable basis that takes into consideration the government programme of BEE and development of emerging Black farmers as well as implementation of exemption criteria related to the beneficiaries of land reform, then clearly racial information in respect of ownership must be included in the valuation role. NAFU realizes that this is an issue of some contention and appropriate communication as to the implementation importance of maintaining this information is thus critical. The issue of identifying foreign ownership of agricultural land must also be addressed in the valuation roles with a view to the possibility of differentiated taxation on foreign owned agricultural land.
Capacity of Local Authorities

What remains the greatest concern for NAFU is the capacity of local authorities to gear up for the implementation of this bill with regard to agricultural property. There is a sense that a fully capacitated local municipal infrastructure will require resources and mechanisms the operation of which will consume a significant portion of the generated revenue. This in turn may require higher rate impositions that will in turn erode the competitiveness of farmers. Clearly if efficient benefit is to be derived from the implementation of this bill (and NAFU believes it must be implemented) in the agricultural environment then the bill must provide for national frameworks and standardized processes and criteria with regard to farm land. A unified view shared by all government and non government agricultural bodies and associations must be dialogued.

Conservation Areas
In regard to the close parallels that exist between non profit based conservation and conservation based economic activity NAFU believes that economic utilization of property should form a prominent component of property categorization activities. NAFU is concerned that broad based exemption of conservation areas from the taxes imposed by this bill will accelerate the trend of converting agricultural land from food producing activities to conservation based economic activity. This trend has played a significant part in the food security situation in Africa and was certainly a pivotal issue in the collapse of agricultural stability in Zimbabwe.

Feedback from Portfolio Committee
While NAFU realizes the difficult work schedules that the Portfolio Committee is confronted with it there is an increasing need for feedback the Committee regarding the reaction to inputs by role players. It is critical to the formation of general opinion and consensus between agriculture participants to have a short term awareness of the reaction to the diverse and often conflicting inputs being rendered to the Committee. Without this structured feedback within short time cycles we can be faced with a long debate where every participant continues to 'sing its own song' without the benefit of gaining insights from consolidated interpretations.

Motsepe Matlala
Deputy President NAFU

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