Masters Degrees (Agricultural Economics)

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Browsing Masters Degrees (Agricultural Economics) by Author "Dannhauser, Andries Petrus"

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    Taxing agriculture: an analysis of a possible land and capital gains tax
    (University of the Free State, 2001-02) Dannhauser, Andries Petrus; Van Schalkwyk, Herman
    English: The South African agricultural sector has experienced a lot of deregulations over the past decade. This process marked the end of state subsidies, favourable commercial agricultural policy and border control measures that, in the past, provided a safety net for commercial farmers. Together with the transformation process, various policy changes occurred and included the transformation of agricultural policy to the benefit of emerging, small and subsistence farmers. Commercial farmers lost their once held favourable position and had to adapt in a globally exposed sector with very little state support. Today, the agricultural sector is challenged with the possible introduction of two new taxes. Since 1992, a South African land tax has been under intensive investigation. This prospect gave rise to divergent opinions and arguments regarding the effect of a land tax on farm operating costs, farmland values, productivity, financing of local governments and other possible effects. During February 2000, the 30-year old possibility of a South African capital gains tax (CGT) gained momentum with the announcement by Minister Trevor Manuel that such a tax will be imposed on April 1st 2001. The past incapacity of the tax administration to handle CGT was supposedly overcome with the introduction of the New Income Tax System (NITS). SARS is confident that they can now handle the administration behind a capital gains tax. With the aim of obtaining some information with regard to the possible effects that a land tax may have, it was necessary to simulate the agricultural sector. Satisfying this need involved the use of static and dynamic linear programming techniques. Different agricultural regions in South Africa were identified for data gathering and subsequent inclusion in the analysis. Specific case studies were chosen and are situated in the Mpumalanga area, the Great Karoo area, the Olifants River irrigation scheme, Potchefstroom area, Bloemfontein area and the Kwazulu-Natal area. Various scenarios were constructed and the effect of the land tax at different rates, different land tax bases and different deductibility rates from income tax were tested. With these results at hand it was possible to provide some guidelines in terms of the effect of a land tax regarding different implementation strategies. In terms of capital gains tax, a thorough literature study indicated that CGT reduces the amount of savings and investments. It furthermore discourages investment in risk-bearing investments such as agriculture. In the CGT analyses, a case study is used to determine the effect of land and capital gains tax on the repayment ability of a farm. With the aim of obtaining some information with regard to the possible effects that a land tax may have, it was necessary to simulate the agricultural sector. Satisfying this need involved the use of static and dynamic linear programming techniques. Different agricultural regions in South Africa were identified for data gathering and subsequent inclusion in the analysis. Specific case studies were chosen and are situated in the Mpumalanga area, the Great Karoo area, the Olifants River irrigation scheme, Potchefstroom area, Bloemfontein area and the Kwazulu-Natal area. Various scenarios were constructed and the effect of the land tax at different rates, different land tax bases and different deductibility rates from income tax were tested. With these results at hand it was possible to provide some guidelines in terms of the effect of a land tax regarding different implementation strategies. If a land tax is introduced on South African agricultural land, market values for farmland would decrease, which implies lower solvency ratios. A land tax will furthermore increase overhead costs, lead to higher financial risk, and result in the production of high-income products (but also higher risk products). The demand for short-term credit will also increase. Levying a land tax simultaneously with a capital gains tax, will lead to a decline in the repayment ability of farms as well as decreases in the security value of the concerned land. The combination of these taxes will increase the risk involved in agriculture.