Agriculture Reference
In-Depth Information
approach of politicians is to impose taxes on those who 'can best afford them' (Frank, 1994).
The interest on who feels the tax burden also leads to the consideration of some important
tax concepts. Distinction is commonly made between legal incidence of the tax and the
economic incidence of the tax (Frank, 1994). In the case of legal incidence, the question
is who is being targeted by the tax. The tax either targets buyers or sellers. The economic
incidence of the tax refers to the shares of the tax burden that is borne by different parties.
Regardless of the legal incidence of the tax, that is, where the tax is placed, the burden of
tax will be shared in the same way. It is the slopes of the supply and demand curves that
determine how the tax burden is distributed across the population. When the slopes of the
demand and supply curves are the same, the tax burden is more less shared equally between
the parties involved in the transaction.
The other costs associated with taxation are referred as deadweight loss or social costs of
the tax. When some external economic instrument leads to an increase in the price of the
commodity above its equilibrium level, it is said that a deadweight loss has occurred. This is
usually associated with the introduction of the value- added tax (VAT). There is always an
intrinsic value attached to a commodity by the consumer which they try to compare with
the price on offer. According to Mankiw (1998) when the value attached to the commodity
by the consumer exceeds the price on offer, they buy, otherwise they don't. When the
consumer buys because of a positive assessment of value relative to product price, there is a
'gain from trade' (Mankiw, 1998). When the consumer does not buy because of a negative
assessment of the price relative to the intrinsic value, there is a loss from trade (Mankiw,
1998). Figure 9.1 can be used to analyze this situation in the same way as the previous
analysis related to the imposition of a tax on the seller of a commodity.
9.4.2 Agricultural land tax in the global/historical context
The debate on the pros and cons of a land tax in South Africa has generally drawn from
economic theory, international experience and the unique demographics of the country
itself. Appeal was usually made to international and historical experience to show that
governments the world over have always relied upon land to generate the necessary tax
revenue to finance the affairs of state (Franzsen, 1992). These motives were shown to
be invariable, whether one was looking at ancient China during the Huang Ti and Hsai
Dynasties (2700-2200 BC), Egypt of the Pharaohs, Mesopotamia, or the Roman Empire
(Franzsen, 1992). On the basis of a historical assessment by Woolery (1989) as cited by
Franzsen (1992), perhaps the most famous land tax advocacy of the modern era is credited
to Henry George whose idea was that governments could lead themselves out of poverty
by heavy taxation of land over and above what was then deemed tolerable. Bird and Stock
(2002) show that in the 1990s, both developing and industrialized countries raised the
proportions of their local taxes attributed to property and land taxes. For instance, about
40% of the locally derived taxes in the developing countries came from property and land
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