Property Rates Bill: agricultural sector submissions

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
12 August 2003
PROPERTY RATES BILL: DELIBERATIONS

Chairperson: Mr Y I Carrim (ANC)

Relevant Documents:
Local Government Property Rates Bill (B19-2003)
South African Institute of Valuers submission
Western Cape Smallholders Association submission
Review of Submissions from Stakeholders in the Agricultural Sector
Submission from Mr G Bartlett
Forestry South Africa Submission
Ethekwini Municipality Submission

SUMMARY
The aim of the meeting was to deal with the submissions from the Agriculture Sector and to reach closure on the issues raised.

MINUTES
Introduction by Chair
The Chairperson noted that to assist with the process the South African Institute of Valuers (SAIV) had been invited together with Dr Johann Kirsten (Department of Agricultural Economics, Extension and Rural Development: University of Pretoria) who had summarised the issues raised by Organised Agriculture. He suggested that a subcommittee should be set up with representatives from emerged and emerging farmers to deal with outstanding issues.

Mr Carrim summarised the main issues of Organised Agriculture. The first was the lack of services that farmers had. Farmers have to provide most services themselves such as schools, houses, clinics and sanitation. Farmers had pointed out that they had the added burden of providing services and that they assisted municipalities in the services they provided on their farms. Farmers had challenged the earlier version of the Bill where it stated that municipalities must deduct property rates from the services that farmers provide. Farmers wanted to know why the department had changed its mind. The remaining issue linked to service provision was farmers being told that rates are used for services and not infrastructure, when there are no services and that if farmers are charged, the Bill must be changed to state, 'used for rural infrastructure'.

Secondly Mr Carrim held that farmers had that there was increasing financial pressure because of property rates. There was a low level of support from the South African government and there was little agricultural research. Also with the minimum wage for farm workers being implemented, there had been an increased a financial strain. The consequences of increased wages on goods would see consumers paying out more. Farmers had submitted that they received a 5% return on investment and that a 2% property rate would lead to a drastic reduction in agricultural investment. Farmers had pointed out that there had been a deduction in subsidies which added to financial strain and the costs of business were large. Farmers had submitted that there would be a drop of around 2% in land value. The negative impact on small towns because of reduced investment was also raised as was the negative impact on emerging farmers. A big concern for farmers was that the debt of municipalities may lead to the undue taxation of Organised Agriculture.

Another major point was that tax and economic policies were being ignored. Farmers submitted that property rates would lead to inflation and that agricultural land hedged inflation. Farmers felt that it was an unfair tax and that it was inequitable for property rates to be used to cover a welfare asset. This was the 'tax on welfare' argument but that there were already taxes for that.

The Chair said that farmers had also brought up the Katz Commission recommendation that if property rates were to be paid, these rates should be less than 1%. The Commission had also noted that the cost of municipalities monitoring and managing the tax would outweigh the revenue received. Farmers had claimed that eight out of the nine outcomes of the Strategic Plan for the Agriculture Sector would be compromised. Food security and job losses were also raised.

On the issue of valuations, farmers had concerns over the meaning of rural land. Submissions had pointed out that significant property in urban areas had been registered as rural land therefore what would be the basis for valuations. They questioned the definition of improvements and the impact of rates on improvements, the implications of crops and working capital which were items such as labour, seeds and fertiliser. The timing of valuations also had an impact. Forestry SA pointed out that the long term nature of tree growth and harvesting changed the value of the property depending on the maturity of the trees. Forestry SA pointed out that they were already paying a tax on the harvested trees.

Forestry SA had submitted that cows were not valued on stock farms but the Bill in its current form wanted to value and tax trees. The submission argued that improvement value (IV) did equal market value (MV) for non-agricultural land but that it did not do so for agricultural land. Forestry SA had motivated that valuations should use investment value and that this was international current practice - no country used MV when it came to trees. The submission suggested valuing the use of the income-generating potential of the farm. It questioned the valuations of different areas of the farm suggesting a prohibition on the rating of workers accommodation in order to encourage improvements. Forestry SA stated it already had prohibitive legislation regarding the use of their land and had asked how the department would deal with that.

Mr Carrim pointed out that it had been motivated that land claims be exempt from paying rates or that the extension of the exclusion on land claims be extended from 10 to 20 years. A general argument in the submissions was that municipalities should be given the latitude to do what they wanted and that only the framework should be regulated. Other general themes were the fact that agricultural land had been taxed before and that the timing of the tax should be changed and that the exclusion of traditional land would put pressure on agricultural land.

Mr Carrim said that the general position of the Committee was not in support of full exclusion but that the tax charged should protect agriculture. The aim of the Bill was not to debilitate farmers.

The Chair said that a way forward was by the end of today to set up a subcommittee made up of the Committee, South African Local Government Association (SALGA), Organised Agriculture, emerging farmers and the Department to deal with outstanding issues.

Review of Submissions from Stakeholders in the Agricultural Sector
Dr Johann Kirsten (Department of Agricultural Economics, Extension and Rural Development) stated that his review document summarised the debates received from the Agricultural Sector and he hoped to provide an independent assessment of the validity of the concerns and to present proposals for the treatment of the Agricultural Sector.

Dr Kirsten summed up the issues as being the impact on land value, the valuation of agricultural land for tax purposes, the level of taxation, the increased tax burden for farmers and the impact on profitability and competitiveness, the impact on the strategic outcomes of the "Strategic Plan for Agriculture" and the adequate reward from society for agriculture and all its functions that it provided to society.

On the issue of the impact on land value, the argument was that a tax on agricultural land would lead to a considerable drop in the value of agricultural land. This tax would have an ongoing impact on the collateral base of farms, from the obtaining of production credit, to production levels and the like. Dr Kirsten agreed with this saying that given the low returns, any tax above 0.5% on agricultural land would have a considerable effect on land values and thus the tax base.

On the issues related to the valuation of agricultural land for tax purposes, Dr Kirsten said that all the submissions pointed to the ambiguity of the definition of the term 'improved value' in relation to farmland. Valuing farmland is complex because the value of crops is often more valuable than the land and crops are already taxed through income tax or company tax. It had been motivated that these items be excluded from the valuation base. Dr Kirsten said that he agreed with the point for the reason that it was clear the difficulties of valuing farm land would put immense pressure on the resources of municipalities to train, retrain valuators and in many cases there would be tremendous litigation when the valuation base was disputed. The added complexity was then to determine the true value of the land or property and he questioned how one was to determine that.

Many submissions had commented on the subject of the level of taxation. In some municipalities rates of 2% of the value of the rateable property are mentioned and the negative effect of such a tax are well argued in the submissions. International trading partners are not taxed on agricultural land or tax it at very low levels. Added to that many farmers are subsidised in wealthier nations. Therefore taking all these factors into account, this would negatively influence the ability of these farmers to compete internationally. Dr Kirsten agreed with this and felt that it was an important point that should be considered.

On the matter of the increased tax burden for farmers and the impact on profitability and competitiveness, Dr Kirsten said that many farmers already face a large tax burden. Current taxes included higher water tariffs, tollgates, Regional Services Council levies, estate duty, tax on diesel, VAT. Dr Kirsten said that this spoke to the unfair treatment of farmers internationally and domestically. He asked why the government did not create a more conducive environment for farmers so that they can invest more and employ more people. There should be more incentives for land reform beneficiaries to be successful and to reward farmers for doing things that government and society would like to see happening.

On the issue of service levels obtained from municipalities, the submissions argue that municipalities deliver virtually no services to the majority of inhabitants on farmland. It was also argued that 38 functions provided by municipalities are largely to the benefit of urban dwellers. Dr Kirsten concurred that there was merit in this argument.

On the impact on the strategic outcomes of the "Strategic Plan for Agriculture", most submissions challenged that the Bill compromised its desired outcomes. Particular mention is made of how this Bill would affect the second core strategy namely: "Global competitiveness and profitability". Dr Kirsten agreed that a large land tax could potentially impact very negatively on the key programme of the Plan: "lowering the overall cost of production" which is an important component of a competitiveness strategy. Dr Kirsten said that it was debatable whether the other four strategic outcomes will be negatively affected as a direct consequence of a land tax but the argument could easily be pushed to that extreme. Dr Kirsten concluded this point by saying that the introduction of a land tax could have potentially large unintended consequences and thereby reduce the attractiveness of agriculture as a viable sector in the economy.

On the topic of the rewards to agriculture from society Dr Kirsten said that society does not reward agriculture for all the benefits that they give to society. He named the additional roles of agriculture as environmental, social, food security and as a buffer role. He said that agriculture should be valued for the holistic role it plays. Very few of the submissions argued against the total ban on the introduction of property taxes and therefore one can buy a lot of good will by fixing a much lower rate for agricultural land.

Any rate of taxation of agricultural land would have many complications therefore it was most likely that the income earned in the process would not cover the total cost of valuing the land and collecting the revenue. He said that it was only at 4% or higher that it would make economic sense and then all profits or returns to land are taxed away, which would in effect mean that nobody would want to farm. The consequences in terms of the poverty and food security agenda of government would be too ghastly to contemplate. Dr Kirsten submitted that based on this point the option of total exemption might be the most logical choice.

SALGA input
Mr Duma Nkosi (Mayor of Ekurhuleni) spoke on behalf of SALGA regarding Organised Agriculture. He said property rates and taxes should not be seen as a punishment but rather it should be a commitment between government and the private sector. The issue was not whether people could pay or not, rather the question was how to support those who could not pay.

With regard to categorisation, the tax should not undermine or harm the activity. He pointed out that what should be looked at is agricultural programmes to ensure the viability of the sector. The issue of subsidies was a discussion about the inefficiency of the agricultural sector and what needed to be looked at in detail was the kind of activity that was taking place on that land. Mr Nkosi concluded by saying that if no rates were applied, some areas were going to have a hard time and the difficulties needed to be looked at.

Ethekwini Municipality
Mr Krish Kumar's submission was a response to a submission made by Mr Bartlett. Mr Kumar noted that their rating policy used the 1997 system. In response to the Bartlett submission he was not aware of any staffing problems in the municipality. Mr Kumar pointed out that the municipality used certified consultants for their valuations.

In response to the ad-hoc allegation by Mr Bartlett, Mr Kumar said that it was an unfair statement and that at all times the municipality followed the law. He responded to the issue about economic viability by saying that there had been a common rating system since 1 July 2001. The 85% rebate to farmers was reviewed. In order to study the impact on agriculture a study by the University of Natal had been commissioned and that the municipality was looking at it closely.

Mr Kumar said that valuers were doing a good job and that only 0.64% objections had been received. Potential had to be taken into account with agricultural land.

At this point, Mr G Grobler (DA) asked the Chair if the presenter's response was a personal response between the two parties.

Mr Carrim agreed that although the issues were relevant to broader issues, people were coming to national government to engage their personal issues. Mr Kumar would be allowed to finish but limited him to bringing up general issues about his experiences with dealing with Mr Bartlett.

Mr Krish Kumar continued. He said that the system they used was based on sound principles and that they used potential across all areas with property being valued as if it was empty.

Mr Kumar said that the Katz Commission report needed to be reviewed to make the findings more relevant. He said that Mr Bartlett claimed that 48% of the public's income went to rates. Mr Kumar pointed out that property rates were funding a basket of goods. He closed by saying that valuation was based on the potential of the farm.

Western Cape Smallholders Association
M Tim Stockhall (Western Cape Smallholders Association) presented on his experience with the Cape Town Unicity regarding the payment of taxes. Mr Stockhall said that before the Unicity came into being, there was openness and ease in the discussions regarding what smallholder entities would pay for taxes. Once the Unicity came into being, it had been increasingly difficult to do submissions. The Unicity had decided on a policy that went against the findings and the valuation recommendations and went against sustainability. Mr Stockhall said that there was serious environmental impact from development, illegal land use and land invasions because municipalities did not have the finances to monitor the situation.

He pointed out that millions of rands are lost through the rural management framework used by departments. Mr Stockhall reported that their recommendations to the Unicity had requested a rebate that was fair and not only did it protect agricultural land owners, but promoted environmentally sound principles and forced municipalities to have an inter-developmental approach.

Discussion
Mr Carrim asked Nico Machalan from the ODA to comment.

Mr Nico Machalan (ODA) commented that Mr Stockhall was a smallholder thus contextually he had different agricultural rebates to that of large farms. Mr Machalan said that part of the debate had been a new rebate scheme, which was based on farmers proving that they were indeed farmers. He held that the under the new rating policy if farmers could prove that they were bona fide farmers they received an 80% rebate.

South African Institute of Valuers Submission on Agricultural Property
Mr R Marten submitted that the fundamental problem was crops such as orchards and vineyards because they were trading rather than fixed assets. Owners of such properties would be adversely treated from a Market Value assessment viewpoint for rating purposes compared with cash crop farms such as wheat, maize or stock farms.

He went on to say that the Forestry/Organised Agriculture approach sought to have the value of such growth crops excluded from the Market Value assessment in terms of the Bill. Mr Marten brought up the notion of 'beneficial improvements' from the 1944 Cape Valuation ordinance No.26 of 1944 where the term meant 'improvements which increase the value of the land for bona fide agricultural purposes, irrespective of where such improvements are situated.' He stated that this term was used to rectify this problem.

The 1944 Ordinance was reintroduced into the 1993 Property Valuation Ordinance, to preserve the exclusion of agricultural improvements from the assessment of 'improved value'. In order to address the rating inequalities faced by owners of agricultural properties with non-annual growing crops such as forestry, plantations, sugar cane, orchards and vineyards, if the value of such rooted crops producing trading output is included in the definition of Market Value, exclusions of such agricultural and ancillary farm improvements from such assessment of MV should be drafted on the lines of the Cape Ordinance provisions. This approach would simplify rural valuations because it would broadly limit the assessment of IV in the case of agricultural property to the farmhouse and the land components, in terms of their component utilisation potential, omitting the growing crops and the farm improvements from assessment.

Mr Marten also submitted that the State should consider setting up public sector valuation departments to cover the district council areas in each province, providing the opportunity of ongoing National Rating Bill improved value assessment from a central point.

The presenter said that the complexities of farm improved value assessments without such exclusions would see the valuers and valuation boards in extensive and time consuming disputes over the profit and loss accounts of farming operations, instead of restricting the assessment to the capital value of the asset, after taking into account the proposed exclusions.

Mr Marten discussed the farm improved value/rebate interrelationship by pointing out that municipalities can be expected to grant major rebates to agricultural properties, in view of the lack of service provision in the rural areas as compared with the urban cores of such areas.

Discussion
Mr Carrim said that the agricultural rating should be based on a simplistic land value excluding all improvements as opposed to commercial operations. It should have limited financial cost implications therefore the rating should be realistic and cost effective. He brought up the rural urban factor and questioned whether there was broad potential or spot potential in relation to agricultural property. He said that agricultural output had to be preserved. The Chair asked about the issue of the impact on land value as discussed by Dr Kirsten.

Mr Ben Dorfling (SALGA) said that whether the Bill was attractive or not was an individual issue. The important issue was that municipalities needed revenue to develop their entire area, therefore revenue must be paid. Part of the responsibility lay with local government but that the subsidy should come from national government. The aim of the Bill was to raise revenue for local government and that the Committee must be careful not to mix the two issues. Mr Dorfling stated that farmland was going to be rated and the government must ask how they could provide facilities. It was a mistake to discuss the extent of usage because there is never equal usage. Mr Dorfling stated that it was a clean argument and that the farmers should not derail the issue when the responsibility lay with someone else that being national government.

Mr Kumar questioned the average rate of return. He pointed out that there was a difference between rural agriculture and urban agriculture. The rural rate of potential covered MV. In order to look at the value of the agricultural sector one had to look at the research and understand the agricultural sector fully because contextually not all farms are the same therefore not all areas were 5%.

Mr Carrim structured the discussion by pointing out that farmers' representations of the cost of services should be taken from property rates. He asked why it was ignored.

Ms Jackie Manche (DPLG) said that the discussion should be on specific issues. No one had disputed the commitment in the country towards agriculture. The international market was relevant to what happened to SA and that what happened here was relevant to outside - basically, subsidies were externalities.

Ms Manche admitted that there were a lot of grounds that advanced the position of the farmers but she pointed out that the discussion at local level should stay at local level and the issues that belong at national level should be taken there. Government had given local government the power to rate property. The challenges facing the agricultural sector belonged at national level to be dealt with by national instruments. It was not the mandate of local government to deal with national problems- national instruments deal with national challenges. The Committee had to recognise that SA had to exist in a global economy but that it was unfair to bring that into the local sphere.

Secondly, Ms Manche pointed out that farmers were not homogenous and that a one size fits all solution could not be found. She held that different farming sectors had different challenges and that many of the arguments were based on farmers as a homogenous group.

Mr Bartlett (Individual Farmer - Durban) said that on the issue of the impact on land values there is a difference between rural and urban farming. He pointed out that in Durban farmers had refused to be part of the metro. Urban sugar farmers had to compete with farmers across the boundary that fell into the rural area. Mr Bartlett said that the impact on rates saw the valuation of property being downsized to meet the rate therefore taxing the land would decrease the value of the land.

Mr Carrim said that the parameters of land needed to be clearly defined. He understood that the submissions were not saying complete exemption to rates. He said that each municipality should look at their circumstances then enter into negotiations with Organised Agriculture. He noted that it was clear that municipalities were not listening. The Committee would have to apply their minds to strengthen the policy decisions and the prescriptive nature of it. He explained that the Committee had tried to be more prescriptive than other parts of the legislation. Mr Carrim further explained that the Constitution limited the extent that municipalities could be prescribed. He commented that Section 229 of the Bill was the only basis of exclusions. The Chair said that the Committee might arrive at a policy that may have constitutional constraints.

Secondly the fact that Organised Agriculture concerns are not being dealt with at national or provincial level could not be placed on local government. If farmers paid property rates it would be deducted from income tax. It would mean more money to local government and less to national government - a redistribution. He asked the subcommittee to investigate if the national income tax contribution would be the same if it were going to property rates. He did agree that municipalities were not spending money efficiently and therefore not doing enough. Also the equitable share was not enough for services and it was something that needed to be worked on.

The Chair stated that the Committee was unlikely to be sympathetic to no property rates but that there was an option for a flat rate. He asked what differences the farmers had with what was already there because the Ministers of Local Government and Finance could limit the increase annually. He read provision 15(3 (b) stating this. He also discussed 'impermissible differentiation' where if the rate was exceeded a prescribed rate would be limited as stated in the provision.

He again noted that if property rates are paid they could be deducted from income tax. He commented that we live in South Africa despite the fact that farmers in Britain are exempt from property rates. Farmers should take into account that there was a specific model of local government here and the historical imbalances of the agricultural sector. He reminded the Committee to remember where they were.

The Chair said that on the specific issue of land value what was the scientific evidence of the 2% rate value fall from 30% to 40%. He asked if the general members wanted to add to the general terrain.

Mr J Durand (NNP) asked about the end of Dr Kirsten's submission on valuating and collecting. If the cost was prohibitive, what was the point of proceeding? If local government taxes were taken back from national government what was the point of taxing? He said that it was cheaper for national government to give local government the money.

Mr Carrim answered by saying that it would not happen. He said that the equitable share is a possible way that municipalities are unproductive in using resources. He repeated that it could not happen but that it was a general question that would be dealt with later.

Rev A D Goosen (ANC) asked about the ripple effect of the tax increase on local government. He questioned that ability of a tax to influence local government and decrease production. He challenged this by saying that wouldn't production increase and act as a buffer on tax instead of decreasing. He asked if the value of the land would not increase because of the increase in production.

Mr Carrim said that this was a question about the consequences on land values.

Mr Kumar said that when property rates taxation goes up it should be put into context when looking at the supposed impact.

Mr Dorfling said that a prescriptive rate for agricultural sector would see the consumer mixing with agriculture differently because the cost would be passed on to them.

Mr Carrim asked for more clarity on the issue of prescribing because the committee was seriously considering being prescriptive.

Mr Dorfling said that it would make council more vulnerable because they would be limited in their ability to obtain sufficient revenue to provide services.

Mr Carrim asked how land values of 30% & 40% had been reached as said in the presentation.

Mr Du Toit (SAIV) said that property values would deduct land values. He said that he could not agree with the capital appreciation view because it did not apply.

Mr Bartlett said that properties in upper Durban were increasing because of debate and not the agricultural sector. He said that in use, the value of property must be viable to farmers in order to have a particular return on income. He said that agriculture must be looked at in its particular use (to grow food and not build houses) basically in use value.

Mr Manyike (DPLG) asked if the 2% in the Income Tax Act for property rates for farmers was deducted as discussed earlier.

Mr Kirsten added to Mr Bartlett's submission and said that there was a reasonable tax calculation being done. He said he agreed with Mr Bartlett that this was different from urban land.

Mr Carrim said that in order to shape the prescription and interference put in the bill, the the national minister needed to go through Mr Kirsten's input. He said that he would ask for the ODA's assistance. He asked for a response to Mr Manyike's question.

Mr Graham Moor (University of Natal - School of Agricultural Sciences & Agribusiness) answered by saying that it was not deducted from Income Tax. Only 80% was not capitalised. He also said that the 5% land impact figure was realistic.

Mr Mark Darroch (University of Natal - School of Agricultural Sciences & Agribusiness) gave clarity on the 5% return figure. He said that the rate minus the land alone was the source of production earned. Net farming income minus the operator labour and residential solely to land asset. He said that the annual rate of 5% was a good proxy for rental if you rented out.

He said that rental at 5% is now a capitalised land value and when rent falls the land values fall. He said that the reason why 2% tax resulted in a fall of 40% was because rental is 5% of land value and tax is 2% of land value therefore 2% of 5% equals 40%.

Mr Carrim said that since the department had done all the studies they should explain all issues had been raised and whether the department had engaged with them. He said that the subcommittee did not want an open-ended mandate.

Mr Dorfling said that he understood the theory. He said that 2% would be seen as lost but how would the return on tax returns affect the land value.

Mr Darroch said that the tax is capitalised therefore it is not only 40% because the services provided, offset the figure. The issue was to what extent were services being provided and he pointed out that the submissions said that there were no services - therefore no offset. In other words there was no contribution to offset the land tax.

Mr Dorfling responded by looking at all services. Water and electricity was not included. He pointed out that capital and operating tax was paid fully by the user. Services like roads, administration, security may not be delivered. He agreed that farmers assisted in security but that roads are maintained. He said that it was an issue of services provided versus rateable services. The extent of services was not equal to the people's in town. He pointed out that not everyone used the same services. Again it was an issue of mixing what belongs to local government. If farmers were going to lose money they must talk to the farmers, but for farmers continually to say that they will lose because of rates is not helping the situation.

Mr Kirsten said that on the issue of property rates deducted from income tax, it was deducted as a business tax and the proportion of the benefit was limited.

Mr Machalan said that the debates revolved around two issues:
- the economic impact extending to the agricultural sector and
- two specific policy issues, namely, who is responsible and what is rated.
He pointed out that the there was the 'what to value' and 'how to value' question. He noted that there was a merge in the discussion of valuation and rating. What needed to be looked at was how to address the concerns that were inconsistent with local rating policies.

Mr Carrim agreed that the Committee would use the ODA framework. He asked if there was general agreement on the definition of 'improved value' or whether it needed to be amended. He asked the department their opinion.

Mr Manyike said that the department would have to look at it before they responded.

Mr Carrim said that the general direction seemed to be to exclude crops.

Mr Machalan agreed that the exclusion of crops, orchids, and vineyards was more or less accepted.

Mr Dorfling also agreed and said that they had reached a consensus.

Mr Rodger Godsmark (Forestry SA) agreed that the exclusion would help the liability on long rotation crops. He brought up the issue that there was still a lot of leeway for valuers to interpret definitions differently. The department should redraft the definitions so that they are precise and there is no ambiguity.

Mr Carrim said that the committee had agreed in consensus to that. Farmers could for now exclude crops. If the committee were given new evidence, the committee would look at it again.

Mr Moor commented on the valuer's presentation, which referred to beneficial exclusions. He asked how they valued investment of rootstock.

Mr Machalan said that he was not an expert but that rootstock was different. He pointed to the principle as defined as crops, orchards and vineyards. He suggested that the subcommittee should deal with it.

Mr Carrim agreed that the subcommittee must look at that level of detail. Terms should be clarified. The debate would have to be about trade-offs. The issue of IV and MV was sorted. The next issue was the level of taxation. If the Committee did not amend IV, municipalities would choose an amount in rand that was too high. He questioned the farmers caucus about the three provisions already in the bill and asked whether this was not enough.

Mr Godsmark agreed that the controls were helpful. He introduced another issue and that was the prohibition by law to plant on over 70% of the land. Forestry SA was managing land that was unproductive.

Mr Carrim asked Mr Machalan to expand on the issue. He asked if the proposed amended conservation clauses did not cover an issue like that. Would it be consistent to use those clauses. The Chair pointed out that public service infrastructure had come together to motivate that the definition had to be expanded. Everyone had come to the Committee to motivate for exclusion. At the end of the period a costing exercise would be done and there would have to be trade offs if the revenue forgone was too high. He reminded everyone that these were all tentative decisions being made.

Mr Machalan explained that Forestry SA was not allowed to use more than 70% of their land. He submitted that because this part could not be developed, it should be exempted.

Mr Manyike asked what the prohibition was for. What did the land have on it and what was the nature of the land?

Mr Carrim asked why the land was excluded.

Mr Godsmark said that the management of the land was based on the National Water Act. He explained that it was used for water conservation and that it had to be managed.

In answer to Mr Grobler asking if that included firebreaks, Mr Godsmark said that it did.

Mr Bartlett contributed by saying that valuers had to decide what the value of conservation land was. He said that this land had a low value and that it should be put in at nominal value.

Mr Carrim said that amendments should be done.

Mr Machalan said that the Committee look at land in its own merit, that is, in the National Water Act context. There was a provision in the Bill earmarked for protected areas therefore the Committee could amend the Bill to include land in protected areas.

Mr Carrim pointed out that it was a subcommittee issue.

Ms Manche asked for clarity about the protection by the Minister. She asked if the committee was favourable to conservation groups.

Mr Godsmark said that he would send the Committee details on the 30%.

Mr Carrim returned to dealing with the level of taxation. He said that the 0.5% rate was not on. He pointed out that if they prescribed for Organised Agriculture then traditional authorities would also make claims. He asked if there was any other way and if it was reasonable to put a percentage there at this stage. Was anyone of the members sympathetic to this view?

It was agreed that it was out.

He then asked the farmers why they should want more - if they were getting three things. What more do you want and why?

Mr Stockhall (Western Cape Smallholders Association) said that when negotiations (used to happen prior to the Unicity?) would happen the head of spatial planning, environmental affairs and finance be present when there was a meeting with Organised Agriculture. He said that they should have input throughout the year in all things.

Mr Carrim noted that basically Mr Stockhall was saying what municipalities should do. He explained that it could not be put into the Bill because it was too prescriptive.

Mr Johann Mettler (SALGA) said that it would it amount to over-regulation. He said that in the Municipal Systems Act, it is stated that all stakeholders should be consulted.

Mr Carrim agreed that the Act took the issue into account. He said that all that could be done was to stress consensus and consultation.

Mr S Mshudulu (ANC) reflected on the Municipal Systems Act and said that in the subcommittees it had been debated as to why interest groups do not participate. He pointed out that the Integrated Development Plan encouraged consultation. He remarked that in terms of skills, it challenged traditional leaders and emergent farmers. He agreed that they should define the word land because land qualifies in different ways.

Mr Carrim agreed that a wonderfully consultative system had been prepared on the basis of local level participation. It was up to municipalities to ensure that constituencies must participate. Those were the aims when the drafting was done.

Mr Dorfling said that the IDP process gave interest groups 120 days to challenge the Bill. He said that it was an open process for anyone to come and challenge. He said that they should not legislate because there was a process.

Mr A Lyle (ANC) asked if the Committee was actually convinced that taxing agricultural land would devalue the land. He pointed out that the general pattern on the value of land was that it increases.

Mr Carrim said that there was a difference between residential land and agricultural land. He pointed out that technical experts argue about the methodology that has been used. He said that the Committee would invite everyone formally to discuss the issue.

Ms Sandra Botha (DA) pointed out that in the Katz Commission Report stated a 1% tax would lead to a 6% decrease. She said that one could not compare it with the city.

Mr Carrim stated that the Committee should entrust a member to investigate the issue.

Mr Grobler observed that it was in an ideal world consultation would always work. He said that municipalities all have the same problem. He pointed out that bigger municipalities could deal with the problem but that smaller ones could not.

Mr Moor discussed the level of taxation. He said that the agricultural sector was looking for increased support from national government and not local government contrary to the belief of the committee. He explained that the sector was not looking for support but for a primary thrust policy at local government level that was linked to national economic policies. He expressed that the Committee should take cognisance of long-term sustainability.

Mr Carrim ruled that nothing more would be said on the level of taxation.

Mr Godsmark said that for smaller municipalities 2% could have a severe impact on Organised Agriculture. He explained that smaller municipalities would think that it is a small rate. He understood why the Bill could not be too prescriptive but that perhaps a maximum rate would protect against this.

Mr Carrim said that no party agreed to being too prescriptive. Everyone shared his concerns but the reality was that there were three provisions in the bill that protected against this. The Committee was trying to tighten the provision.

Mr Du Toit said that there were fears that the level of taxation that would be applied would be that to balance the books of the municipality. The levels should be determined by the municipal services rendered. He reminded them that the service levels differed.

Mr Carrim pointed out that sensible municipalities would be consistent. He admitted that the information on struggling poorer municipalities was frightening. The farmers had a right to be concerned. He asked Mr Machalan what was outstanding.

Mr Machalan said that how was the subcommittee being set up and what would be dealt with. He pointed out that the Committee had been given interesting perspectives from Durban and Cape Town. The Committee had accepted that municipalities were battling with the valuations on agricultural land. He reminded them that Cape Town and Durban were giving 85% and 80% rebates respectively to this sector. He noted that all the submissions requested exclusion however the Committee was concerned about optimising local revenue. The aim was to establish a standardised system across the country both vertically and horizontally for equity within the jurisdiction for local government.

He pointed out that when there was a rebate someone else was paying for it and that in the metro the rebate is being paid. He explained that the level of taxation was hard through legislation. He observed that the 'how, why and what categories' framework was the best way forward.

Mr Bartlett asked Mr Machalan what he meant when he said that agricultural land was receiving an 80% rebate. He asked 80% of what.

Mr Dorfling stated that the provision of different ratios between categories would settle the issue.

Mr Carrim stated that the ODA was going to have a summary of all the issues by 18 August. The subcommittee would be set up with the farming sector having to appoint their representatives for the subcommittee. Transparency and openness had led to the sympathy of the Committee. He asked the Department if they had anything to say.

Ms Manche said it had been useful to listen to the submissions. When they were drafting the Bill they realised that Organised Agriculture was an important part of the economy and there had been a strong consultation process locally and globally. She explained the need to move away from the old position that municipalities had no capacity to provide services as local government was now wall-to-wall based on the provision of services by local government. She said that realistically the improvements on farms were for the farmer's own benefit and not for the public and that all services would now be provided by municipalities.

Ms Manche stated that she understood the challenges facing the agricultural sector. She admitted that recommendations for the sector had come through the Office of the President and that in order to deal with the sector effectively they had workshops with the farmers. She pointed out that anything else had to be discussed at a national level because local government did not have the capacity to do that. She said that if the committee was not careful a situation would arise where the cost of administration would not be covered by the revenue yield. She closed by saying that rates would be the decision of municipalities but that the system of local government was accountable to its residents.

Mr Carrim said the issue of agricultural land had surprised him as a whole.

Ms Botha commented on the income tax reduction. She said that it should be production cost.

Mr Carrim said that there were two outstanding issues. Firstly the existing rateable property versus new rateable property. The issue with this was the lack of a phasing-in because the property was already rated. The subcommittee would need to deal with it. Secondly, should the exemption for land reform beneficiaries be 20 years?

Mr Durand followed up by asking about emerging black farmers.

Mr Carrim pointed out that everyone was aware of concerns of emerging farmers. Solutions could not only be found through the Bill. He motivated that they be exempt for 20 years because established farmers enjoyed subsidies. Property rates could not be separated from Black Economic Empowerment. He brought up the issue of absentee farmers. He asked the members how many of them were sympathetic to the 20 year grace period.

Ms Botha said that the committee should look at the cost of exempting. In calculating the cost, land reform was not a local government problem. If this group of farmers was exempted the committee must value and table profit forgone. Ms Botha motivated that exclusions should be put in the Bill but that if local government must forgo revenue due to national legislation then the equitable share must be increased. The Committee must ask National Treasury that if they are asking local government to exempt R15 000 from homeowners whose properties were less that this, then national treasury were going to have to cover the cost. Exclusions should be rated with complete knowledge of the revenue forgone.

Mr Grobler said that they should be exempted but that it should not be for so long. He also brought up the issue of the sale of the property.

Mr Carrim explained that the exclusion immediately falls away on sale. The Bill takes care of it. He said that the Committee was sympathetic to the disadvantages but was not fully in support of 20 years.

Ms Manche said that the Department was still pushing for 10 years.

Mr Carrim closed the meeting thereafter.