Implications of tax reform in selected countries for taxation of income in agriculture

Lamont, Michael Peter (1990-12)

Thesis (PhD)--Stellenbosch University, 1990.

Thesis

ENGLISH SUMMARY : If monetarism was the economic fashion of the 1970's, tax reform has become the vogue of the 1980's. This study consequently reviews the implications of tax reform for tax provisions applicable to agriculture, particularly those in South Africa. Income tax concessions and relevant provisions on farm tax shelters receive the most attention. This is done against the background of an economic-theoretical perspective on different tax bases and recent reforms in Australia, Canada, New Zealand, the United Kingdom and the United States. An analysis of different tax bases illustrates that their measurement and implementation are fraught with difficulties. The prestige of the income tax has been tarnished by its perceived 4nfairness, a proliferation of tax concessions, inflation and the promotion of direct consumption taxes. As a result of the many disenchantments with and shortcomings of the income tax there is clearly a trend towards income tax restructuring. Although the restructuring in the countries reviewed in this study differs greatly, three main trends are discernible. Firstly, there is a movement towards greater reliance on indirect taxes. Secondly, there is a trend towards lowering tax rates and broadening the base which in many but not all cases is accompanied by the elimination of income tax concessions. Thirdly many countries have provided a more neutral tax treatment of income from different sources because different rates and allowances often have been the source of tax avoidance and tax sheltering. Base broadening and rate cutting have important implications for agriculture since the industry has enjoyed preferential fiscal treatment and has been widely regarded as being one of the main tax shelter industries. Fiscal preference has manifested itself in the application of income tax to farming by way of cash accounting, accelerated or immediate write-offs of capital expenditures, the favourable valuation of livestock, averaging measures and capital gains tax exemptions. Agriculture has traditionally provided two basic types of tax shelters: deferral and conversion. The tax deferral comes through mismatching and current deductions of costs which, in many other industries, would have had to be capitalised. The activities for which the costs were incurred then produce income in later years, at which time the deferred taxes have to be paid. In several situations this later income is considered as a capital gain which is either favourably taxed or not taxed at all. In agriculture many of the benefits of deferral and conversion have been increased by leverage. In many instances tax preference required the introduction of quarantining provisions to ensure that the tax benefits would not be enjoyed by part-time farmers. A survey of research literature reveals that income tax concessions and tax sheltering have bestowed great benefits on agriculture, albeit at a high cost to the fisc. It also reveals how the patterns of ownership, the control of assets, the distribution of income and wealth, the form of organisation, prices and supply of products and the allocation of resources have been moulded by behaviour induced, at least in part, by tax concessions. Recent international reform movements have addressed several of the detrimental consequences of income tax concessions, but in many instances have focused on symptoms only. Rather than attempting to regulate further the undesirable effects of the present system, a complete reform of the income tax as it applies to agriculture is suggested. It is proposed that deductibility allowances for capital or development expenditures be placed on a par with other commercial sectors; that the standard value scheme for livestock be replaced with new livestock valuation schemes; that the need for quarantining provisions be eliminated and that new options for averaging be considered.

AFRIKAANSE OPSOMMING : Terwyl monetarisme die ekonomiese modewoord gedurende die sewentigerjare was, is die tagtigerjare daarenteen deur belastinghervorming gekerunerk. Hierdie studie ontleed gevolglik die implikasies van belastinghervorming vir landboubelastingkonsessies, veral in Suid-Afrika. Inkomstebelastingkonsessies en landboubelastingskuilings geniet spesiale aandag . Die ontleding geskied teen die agtergrond van 'n ekonomies-teoretiese perspektief op verskillende belastingbasisse asook onlangse belastinghervormings in Australie, Kanada, NieuSeeland, die Verenigde Koninkryk en die Verenigde State van Amerika. 'n Ontleding van verskillende belastingbasisse bring aan die lig dat die meting en implementering daarvan uiters problematies van aard is. Persepsies van onbillikheid, die proliferasie van belastingkonsessies, inflasie en die promosie van 'n direkte uitgawebelasting het die aansien van inkomstebelasting ietwat ondermyn. Vanwee tekortkominge en 'n ontnugtering met die inkomstebelastingstelsel is 'n tendens te bespeur om dit eerder te herstruktureer. Alhoewel daar verskille bestaan in die wyses van herstrukturering in die lande wat in hierdie studie ontleed word, is drie tendense duidelik waarneembaar. Eerstens word daar toenemend op indirekte belasting as 'n bron van inkomste gesteun. Tweedens word belastingkoerse verlaag en die belastingbasis verbreed. Laasgenoemde gaan dikwels met die uitskakeling van belastingkonsessies gepaard. Derdens poog verskeie lande om verskillende bronne van inkomste aan 'n meer neutrale belastingheffing te onderwerp omdat dispariteite in belastingkoerse en -toelaes dikwels die bron van belastingvermyding en -skuilings is. Die verbreding van belastingbasisse en die verlaging van belastingkoerse het belangrike implikasies vir die landbou, omdat die sektor dikwels fiskale bevoorregting geniet en as een van die belangrike sektore vir belastingskuilings geag word. Fiskale bevoorregting manifesteer in die inkomstebelasting by wyse van belastingheffing op 'n kontantbasis, versnelde afskrywing van kapitaaluitgawes, die voordelige waardasie van vee, nivelleringskemas en die vrystellings van kapitaalwinsbelasting. Landbou bied tradisioneel twee basiese vorme van belastingskuiling: uitstel en omsetting. Die uitstel van belasting word bewerkstellig deur die ontkoppeling van inkomste en uitgawes en deurdat uitgawes wat normaalweg gekapitaliseer sou word, as 'n onmiddellike aftrekking toegelaat word. Die bedrywighede waarvoor die aftrekking toegelaat is, lewer eers inkomste in daaropvolgende jare op wat dan aan uitgestelde belasting onderwerp word. Die uitgestelde inkomste word dikwels as kapitale wins geag wat of gunstig belas word of van sodanige belasting vrygestel word. Die voordele van uitstel of omsetting word geredelik deur hefboomwerking vergroot. Fiskale bevoorregting vereis menigmaal fiskale inperkings om te verhoed dat deeltydse boere nie in die belastingvergunnings mag deel nie. 'n Literatuurstudie toon dat inkomstebelastingkonsessies en belastingskuilings die landbou groot voordele laat toekom, maar dat dit teen groot koste vir die fiskus geskied. Die patroon van eienaarskap, beheer van landboubates, die verdeling van inkomste en rykdom, organisasievorme, pryse en die aanbod van landbouprodukte asook die allokasie van hulpbronne word gefatsoeneer deur optrede wat deels deur belastingkonsessies beinvloed is. Alhoewel resente internasionale belastinghervorming verskeie nadele van inkomstebelastingkonsessies aangespreek het, was die fokus daarvan dikwels net op die simptome toegespits. In plaas daarvan om voort te gaan om die ongewenste gevolge van die huidige stelsel te reguleer, word 'n nuwe inkomstebelastingbedeling vir die landbou voorgestel. Daar word voorgestel dat die onmiddellike aftrekking van kapitaal- of ontwikkelingsuitgawes op gelyke voet met ander handelsektore geplaas word; dat die skema van standaarwaardes vir vee met nuwe veeskemas vervang word; dat die behoefte aan fiskale inperkingsmaatreels verdwyn en dat alternatiewe nivelleringsopsies oorweeg word.

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