Faculty of Economic and Management Sciences
School of Economic Sciences
Department of Economics
Selected Highlights from Research Findings
The aim of this research project was to gather primary data in-country and to compile a property tax profile for all 53 countries in Africa. The study was led by Prof Riël Franzsen, director of the African Tax Institute, in collaboration with the Valuation and Taxation Department of the Lincoln Institute of Land Policy, USA. Prof Franzsen prepared and proposed a comprehensive continent-wide research project in respect of property-related taxation in Africa. The researchers focused on identifying which suitably qualified individuals from various regions in Africa annually apply for research fellowships with the primary goal to gather data on property-related taxes in African countries and to prepare individual country reports. During 2008, the first three research fellows – from the Democratic Republic of the Congo (DRC), Mozambique and Sierra Leone – tabled individual country reports on property-related taxation in 15 African countries. Six additional fellows – two from Cameroon, one from Chad, two from Ethiopia and one from Niger – were selected for 2008 and commenced their research on a further 16 countries. In December 2008, a further three fellows – from Egypt, Kenya and Zambia – were selected. Six of the 12 fellows were postdoctoral researchers. At least 25 country reports are expected to be published on the African Tax Institute and Lincoln Institute web sites by April 2009. It is envisaged that a comprehensive review of the Status of Property Taxation in Africa will be published electronically and in book form by 2010/11. It will consist of an overall overview report and commentaries on regional trends, sourced from individual country reports for all 53 African countries. Preliminary findings from the country reports received to date indicated that at least six different tax bases are used for property tax purposes in Africa, with some countries allowing more than one option in legislation. Despite an undeveloped property market and weak valuation profession in many countries, ad valorem property tax systems are prevalent and indeed on the increase. In addition, the researchers found that although comprehensive legislation was exhibited in most countries reviewed to date, tax base coverage is generally poor and tax administration weak
Contact person: Prof RCD Franzsen.
A concise overview of research on land value taxation undertaken by Prof Franzsen and Dr William McCluskey (University of Ulster, Northern Ireland) over the past seven years was published as a chapter in a book entitled Making the Property Tax work: experiences in developing and transition countries (2008). The title of the chapter is “Feasibility of site value taxation”. In addition, Prof Franzsen undertook further research on land value taxation for the book Land value taxation – theory, evidence and practice, commissioned by the Lincoln Institute of Land Policy, USA. He found that the number of countries utilising a land value only property tax system is on the decline. Although the quantity of data required to manage a land value tax system is less demanding, in highly developed urban jurisdictions there are often too few sales of undeveloped land to provide credible evidence to sustain a tax based on unimproved land values only. The lower nominal tax rates associated with capital improved value systems make these systems politically more acceptable than land value systems. In less developed countries with limited resources and a paucity of valuation skills, land value systems may still provide a credible tax base that can generate adequate levels of revenue
Contact person: Prof RCD Franzsen.
Using a static computable general equilibrium (CGE) model of South Africa and simulating various shocks to the price of electricity, the researchers attempted to measure the impact of this on the real appreciation of the exchange rate or international trade competitiveness. A number of conclusions were reached from the modelling exercises. Electricity price increases have mostly negative effects on the economy. All industry production decreases in the short run, as does gross domestic product (GDP), while many industries are also worse off in the long run. Poorer groups are more badly affected than other groups, therefore price increases should be considered carefully. The most efficient policy is not necessarily the most equitable one. While some industries enjoy the benefits of exemptions, it follows that the consumers and industries that are not exempt have to bear these costs. The industries and final consumers that face higher increases are obviously worse off than the ones that receive lower increases. The former industries experience a greater negative effect than in the case where all industries are subjected to the same price increase. When foreign consumers pay less for electricity than domestic ones, domestic consumers end up cross-subsidising them. In general, exports and foreign markets determine what the industry results will be when electricity prices increase. The effect on the terms of trade and balance of payments is important. Export-driven sectors are particularly vulnerable to an electricity price hike. Some sectors like the iron and steel industry are particularly sensitive to a change in electricity prices. As electricity constitutes a large proportion of their input cost, any increase in their price influences their cost significantly. Moreover, these industries are export-driven, thus higher costs adversely affect their competitiveness in the world market. In the model, the effect on the consumer price index, and therefore on the real exchange rate, is generally very small. Although the South African Reserve Bank warned against inflationary effects of higher electricity prices, significant effects were not experienced in this regard
Contact person: Prof JH van Heerden.
In a joint study with the Monash University’s Centre of Policy Studies (CoPS) (Melbourne, Australia) and the South African National Treasury, the Department of Economics conducted a study on the impact of an electricity generation tax on South Africa’s competitiveness and trade composition under different scenarios. The study was conducted in two phases. During the first phase, the Computable General Equilibrium (UPGEM) model of the Department of Economics was used to assess the impact of such a tax. All the countries are grouped together as ‘the rest of the world’. During the second phase, the global trade (GTAP) model of the CoPS was used to estimate the impacts of the outcome of the first phase (the impact of the generation tax on the domestic economy of South Africa) on world trade and South Africa’s competitiveness. Phase 1 findings indicated that the key variables, such as employment and GDP, respond better under a general increase in government expenditure than an increase in investment. Inflation, however, reacts more negatively and the reduction in emissions is slightly less when the revenue is recycled through an increase in government expenditure than through an increase in investment. When considering recycling the revenue through increased government expenditure, it is possible to get a triple dividend: a decline in emissions, an increase in GDP and employment and, as an added bonus, an increase in household consumption. These benefits, however, come at a cost of a net increase in inflation, an increase in imports and a reduction in exports. The findings of Phase 2 indicated that if South Africa were to unilaterally decide to increase its electricity tariff by 10%, the country’s neighbours and trading partners’ GDP would improve marginally. The increase in GDP varies between close to zero and 0.0171%. It has to be kept this low because it will turn trade away from South Africa to other countries. Should the other countries decide to introduce a 10% electricity generation tax, while South Africa doesn’t, it will cause them to contract, which will have a detrimental effect on the South African economy. Should South Africa also introduce such a tax, the effect will be worse than when the other countries do so on their own. This is to be expected since, in the GTAP model, it is not possible to recycle tax revenue to the various sectors, so the tax is revenue lost out of the system. In effect, the scenarios and results presented reflect the worst case scenarios. The positive outcome of these taxes is that CO2 emissions will decline. It should be noted, however, that the general impact on the economy is very small
Contact person: Prof JH van Heerden.
In this study, a counterfactual picture is sketched of what could have happened had land reform in Zimbabwe been handled in a different way. The researchers used a CGE model coupled with a microsimulation model to quantify the impact of land redistribution in terms of poverty, inequality and production. The results for the land reform simulations showed that the reform could have had the potential of generating substantial reductions in poverty and inequality in the rural areas. The wealthier households, however, would have seen a slight reduction in their welfare. What underpin these positive outcomes are the complementary adjustments in the fiscal deficit and external balance, elements that were generally lacking from the way Zimbabwe’s land reform was actually executed. These results tend to suggest that well planned and executed land reform can still play an important role in reducing poverty and inequality
Contact person: Prof MR Chitiga-Mabugu.
The researchers made use of the Agricultural Trade Policy Simulation Model (ATPSM) of the United Nations Conference on Trade and Development (UNCTAD) to investigate the impact of agricultural trade reform in South Africa. The researchers started off by capturing the magnitude of the economic impact of global agricultural trade reform in South Africa and then proceeded to link the economic impact of the reform in South Africa to agricultural reforms in the European Union (EU). Trade reform focuses on substantial tariff reduction, although in the case of the EU scenarios, it also includes reduction in domestic support and export subsidies. The results show that unilateral tariff reduction in the selected number of agricultural products amounts to welfare gains of US$21 million. These gains are three times higher when accompanied by extensive reforms in the EU
Contact person: Prof MR Chitiga-Mabugu.
|
