Global Land Tenure Network
Land-Value Taxation In The Republic of South AfricaBy Godfrey R .A. Dunkley
Revised August 9th. 2007
History Of Land TaxationSouth Africa has a long history of collecting a portion of land rent as revenue. In 1652 the Dutch East India Company asserted its right to the land in the western Cape. Under Jan van Riebeeck the settlers had only tentative rights to the land at the discretion of the Governor, for which they paid a land tax or quitrent, according to its agricultural quality. In 1714 a fee of twelve riksdollars per annum was charged for grazing land and a tithe of one tenth of the crop for sowing land. In 1731 farmers were allowed to register land in erfpacht for fifteen years with an annual payment of twenty-four riksdollars for a sixty morgen farm. Some were later converted to freehold with a minimum payment of twenty-four riksdollars per annum plus an additional amount on the more valuable farms, to be assessed by officials. 1.
Sir John Cradock introduced Perpetual Quitrent in 1813 allowing holders of land on loan to establish security. The maximum size of a farm was to be three thousand morgen and the annual fee not to exceed two hundred and fifty riksdollars, but this could be increased at a later date. 2.
As the Boer farmers gradually migrated to the east in later years, so the British government followed with a demand for land tribute, which resulted in the Great Trek into the hinterland, namely the Orange Free State and the Transvaal, where for a while they were free. With the establishment of both these territories as republics, farms were laid out on the principle of putting in four pegs during a one hour gallop on horseback. First come got the best land. Their payment was rent in the form of service, that is, the provision of one man, one horse and one rifle when needed to preserve the peace or defend the land. As in Europe this service gradually gave way to other forms of taxation.
After the establishment of the Union of South Africa in 1910 most municipal rating was based on the total value of both land and improvements. At that stage the Labour Party of South Africa included the taxation of land in its manifesto. In 1912 a Provincial Commission was set up by the Transvaal to investigate the franchising and rating of leasehold plots or stands in Johannesburg, where the stand holders were paying rates. After a stalemate situation, the late Justice Frank A.W. Lucas proposed that rates should be levied on the site value of land with the recommendation that, despite anything to the contrary in the titles, the freehold owner should not be allowed to recover the rates levied on him from the leaseholder. The Commission recommended this proposal.
About this time several Labour candidates, including Lucas, were elected to the Johannesburg Town Council. They were pledged to press for the rating of site values and the exemption of all improvements. A resolution to this effect was adopted and submitted to Province. However the Provincial Council consisted mainly of large landowners and disregarded the recommendation.
In 1914, following labour strike action; the Labour Party took control of Province with a majority of one. This allowed them to pass the necessary Transvaal Provincial Ordinance No 1 of 1916 that allowed for Site Value Rating and prevented Flat Rating, also known as Improved Value Rating, i.e. land and improvements at the same percentage. It was well understood that to collect rates from improvements discourages improving property. This ordinance, consolidated into Ordinance No 20 (1933) had the effect of ensuring a higher rate on land than on improvements, by at least one penny in the pound. This provision was removed in the new Ordinance No.11 of 1977 where the emphasis was still on rating of land but allows equal rating of improvements under certain conditions. However rating on improvements can never be higher than on land. The Transvaal Ordinance acted as a model for much of the country.
Some details of the above Ordinance were given in the first edition of “Land-Value Taxation Around the World” (1955), but warrant repeating in part. Site (land) value is defined as follows: “Site value of land” shall mean the capital sum which the land or interest in land might be expected to realize if offered for sale on such reasonable terms and conditions as a bone fide seller would require, assuming that the improvements, if any, thereon, or appertaining thereto, had not been made. The site value of land shall include any value due to any franchise, license, privilege or concession attaching to the site for the time being.” 4.
The earlier Transvaal Ordinance effectively prevented Flat Rating or total value rating. Johannesburg was the first to adopt SVR in 1918, followed by other municipalities. By 1955 there were 20 of the 60 urban municipalities on SVR and by 1979 all the major municipalities in the Transvaal had followed suite.
The other provinces had gradually followed the lead of the Transvaal. By 1979, 60 of the 125 largest municipalities in South Africa were on SVR, and by 1984, of the 112 cities with a total value of land and improvements of over R30 Million, 62 were on SVR. These accounted for 70% of total value of rating in RSA. By then only two of these largest cities were still on Flat Rating, namely Cape Town and Port Elizabeth. The others, on Composite Rating, namely a higher percentage on land than on improvements or commonly spoken of as two-rate system, all collect a larger percentage from land values than from improvements. It would be safe to say that less than 15% of total rates in RSA came from improvements at that stage. Towns and villages with a total value of less than R30 Million only accounted for 2.4% of the municipal revenue in RSA so could have little impact on conclusions given. A large percentage of the low value, low growth towns were on Flat Rating. 5. The rating of improvements partly accounts for the lack of investment and growth.
Two surveys on rating in South Africa, by this author, showed that the cities that collect rates on site value only have drawn twice the percentage capital investment compared to those which rate total value. The first survey covered a twenty-year period from 1959 to 1979 and the second a ten-year period from 1974 to 1984. The second survey was staggered by five years from the first to allow for differences in updating of valuation rolls. The Transvaal Ordinance calls for a three-year update whilst the Cape Province allows for ten-yea
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