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PORTFOLIO COMMITTEE ON FINANCE
21 September 1999
Briefing on 8th interim report on katz commission: THE IMPLICATIONS OF INTRODUCING A land tax in south africa
Eight Interim Report of the Commission of Enquiry into certain Aspects of the Tax Structure of South Africa
Mr M Grote, Prof H Van Schalkwyk and Prof R Franzsen, members of the Katz Commission Sub committee (the Committee), presented the annual report to the committee.
Prof Dennis Davis, Commissioner on the Katz Commission (the Commission), said that under his Chairmanship the main task of the Sub-committee was to investigate and report on the feasibility of a land tax in South Africa. He said the members of the Committee come from different perspectives and outlooks and it is remarkable that an agreement or consensus could be reached on the land tax issue. Several of the proposals or recommendations made by the Committee differed from that of the Commission. One of the Committee's recommendations was that urban and rural property rates should differ, but the Commission thought otherwise. The reason for not distinguishing between urban and rural rates was the equality provision of the Constitution and the Commission was very careful in not breaching this provision.
Prof Davis said that there was also an enormous debate around the issue of having either a market value or use value principle. The Committee made a good case in favour of the use value, and on the other hand certain Commission members argue strongly for a market value principle.
The general feeling is that the land tax could be a very good form of revenue for the country, especially at local government level. The Commission had very little difficulty endorsing the implementation of the land tax.
Questions from members
Adv D Schutte (DP) : If this tax is implemented many taxpayers will immediately be exempted, especially owners of tribal land. The report sets out two requirements relating to tribal land exemptions, in that tribal land must be surveyed and be subject to legal protection. Apart from this, in itself, being discriminatory, is this realistic?
Response (Prof Davis): It is important that this issue should be looked at in its entirety. I acknowledge that there will be a difficulty with tribal land tax. The implementation of the land tax will be a process and therefore we need to give it time. What we are trying to say to the local councils is that they could exempt tribal land if they want, but they also have to consider and look at the consequences.
Mr K Andrew (DP) : We have been advised that this land tax is based on a benefit system. What benefit do the rural areas receive from this?
Response (Prof Davis): The idea with this tax was that revenue from taxes will be used by District Councils for the benefit of the communities. Tax collected in a particular community will be used to the benefit of that very same community and not for another area. What we were trying to do is introduce a national land tax that would be appropriate down the line for local governments to generate revenue.
Ms B Hogan (ANC) : You have mentioned that there is a debate around market value and use value, could you elaborate on the difference and the implications?
Response (Mr Van Schalkwyk): Market values do not reflect the real productive potential of the land, whereas a use value will more likely reflect the real productive potential of the land. The income that one can get from land very much depends on the farm factors and non-farm factors, which are taken into consideration by farmers and farm owners. Farm factors are the productivity capacity of the land, i.e. planting crops. Non-farming factors are factors not relating to productivity capacity of the land, but rather, for example, a buyer foresees that an urban area might expand and therefore purchases an big piece of land on the boundary in order to sell it to developers in the future. In general these factors must be taken into account when valuing land. In the end whether the market value or use value will be used is of importance, as the value of the land will determine the land tax to be paid.
Ms Marshoff (ANC) : Will the land tax put an extra burden on farmers?
Response (Mr Grote): It really depends on the design of the tax system and the considerations of both parties (local council and the farmers).
Mr M Lekgoro (ANC) : What other national goals could be achieved other than income to local authorities, i.e. land reform or redistribution of land?
Response (Prof Van Schalkwyk): So far land reform has not been very successful. To raise land tax will not have any effect on performance of the land reform programme, it will only make land available.
Dr Davies (ANC) : What is the committee's view on perhaps charging a higher tax rate to larger land owners than to smaller land owners or the inclusion of some exemptions?
Response (Prof Van Schalkwyk): The idea is rather to raise the tax for those who do not use their land so that they could move towards a decision to sell that land.
The meeting was concluded.