Farm tax approved
2005-06-09
Sonja Burger
THE new Property Tax Act which allows for full taxation of agricultural land, has been signed by the State President.
The market value of the property will be used to calculate the tax. No distinction will be made between land and fixed improvements once new valuations have been completed. The new system is expected to be implemented by 2010.
Negotiations between farmers and municipalities over the next four years will have a profound effect on how this law will affect farmers.
“Now is the time to get involved,” says Johan Pienaar, Agri-SA’s Director of Economics and Trade.
“Farmers in municipal areas should create a united front to state their case,” says Johan Pienaar.
“If they do not become involved in the process now, they will lose golden opportunities to use the stipulations of the law, especially those specifically devised for agriculture, to their benefit.”
Although market values will be the norm, provision will, in fact, be made for situations where land is used for multiple purposes, for example, where guesthouses, mining activities and farming take place on the same registered property.
Tax rates must be reviewed annually in relation to the relevant municipal budget. Very importantly, this implies that organised agriculture must monitor the process on an annual basis.
Pienaar urges, “The rates policy of municipalities is probably the most important aspect with which farmers’ associations or similar groupings of farmers at local government level should become involved, since it will contain the criteria according to which different properties will be assessed differently and the criteria according to which specific owners or specific properties will be excluded or subject to rebates or reduced assessments.
“The rates policy will also spell out the approach followed by municipalities in respect of the valuation of multi-purpose properties and define cost-benefit analyses of exclusions.”
The Act stipulates that when the criteria for exemptions, rebates or reduced assessments in respect of agricultural property are considered, the following should apply:
* The extent of service delivery by the municipality to the relevant property;
* The contribution of agriculture to the local economy;
* The degree to which the agricultural sector itself renders services
and supports the development obligations of the municipality;
* The contribution of the agricultural sector to the social and economic welfare of farm workers.
This implies that agricultural organisations and individual farmers at grassroots level must liaise directly with the municipality.
When they talk to the municipality, they should at least possess some information about the contribution of agriculture to the economic and social welfare of the area in order to strengthen their case.
They should have up-to-date information on the position of farm workers. They should know exactly which services are rendered by their municipality and which aren’t. They’ll have to do their homework before they negotiate.
At this stage the general feeling is that a property tax rate of between a quarter and a half percent could be sustainable, but above that figure the tax becomes economically unsustainable (currently local farmers are taxed at a quarter of residential rates, at 0,25 cents in the rand).
Not everyone will pay the same land tax in a municipal area. Section 8 of the Property Tax Act makes provision for the grouping of property with a view to implementing differential rates.
There are approximately 18 property categories with certain sub-categories which, for example, differentiate between those for agricultural purposes and those for residential and other purposes.
Given that agricultural property is often used for a variety of purposes (for example, for both agricultural and residential purposes), organised agriculture will have to take note of the values allocated to the property concerned.
Johan Pienaar says it will probably be wise to try to value agricultural property according to the dominant use (agriculture), which is in fact permitted in terms of section 9, rather than on the basis of a multi-purpose use.
Evaluation in terms of dominant agricultural use could amount to a lower total value. If multi-purpose use is involved, the market values and relevant rates will be applicable to each separate use.
Farmers and agricultural bodies should study Section 15 of the law very carefully. It makes provision for the implementation of exemptions, discounts and rebates for specific categories of properties and specific owners within the groupings of property.
In the latter case, specific provision is made for “owners of agricultural properties who are bona fide farmers”.
The law does not provide a definition of bona fide farmers, but it seems it will be to a farmer’s interest to be classified as such.
Properties intended for eco-tourism and game ranching, for instance, do not qualify as bona fide.
In addition, provision is made for property tax relief in certain areas during times of disaster, as defined by the Disaster Management Act, 2002, or in the event of negative social and economic circumstances.
So, if it’s been a difficult year and it’s time for the annual review of the land tax, farmers are advised to flock to the municipal offices.
In terms of section 16, the agricultural sector may also, after consultation with the local municipality (where a compromise was not possible), approach the minister through the structures of organised agriculture with evidence that taxation is too high.
If such evidence is conclusive, the minister must give instructions for the relevant rates to be reduced.
In terms of section 17, beneficiaries of land reform will enjoy exemption from property tax for a period of ten years after registration of the title deed.
The first R15 000 of the market value of residential property will be exempt from property tax. Farmhouses will also qualify for this. This amount can be adjusted periodically to make provision for the effect of inflation.
The rate on non-residential property may not exceed a prescribed ratio (as determined by the minister) of the rate on residential property.
Farm property will therefore consistently be subject to a rate lower than the rate applicable to houses.
In terms of section 20, the minister may also place a limit on the percentage increase in rates on properties or a specific category of property.
In terms of section 22 a municipality may identify a specific area as a special rating area, and impose an additional rate with a view to certain improvements in that area.
However, members of the community who must pay the additional rates will have to agree to it. These additional rates must also be in accordance with the municipality’s integrated development plan.
In terms of section 30 a general valuation of property (with certain exclusions) must be done and a valuation roll compiled.
Johan Pienaar recommends that organised agriculture ensure that all property is valued as comprehensively as possible as it would be the only method whereby the implications of exclusions on the relevant municipal budgets could be determined.
In terms of section 45, the physical inspection of property for valuation is optional, and other methods may be used for valuation purposes.
When the market value of land for agricultural purposes is determined, the value of unharvested cash crops and forest plantations must be ignored.
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