Draft Taxation Laws Amendment Bill: Submission to the Standing Committee on Finance

1. Draft Taxation Laws Amendment Bill:Submission to the Standing Committee on Finance Dawie Maree Senior Economist 26 August 2014

2. About Agri SA • Agri South Africa is a federal organisation which promotes, on behalf of its members, the sustainability, profitability and stability of agricultural through its involvement and input on national and international level • Represent farmers through: • 9 provincial unions • 24 commodity organisations • Involvement and input on national and international level • Representing also TAU SA, Potatoes SA

3. Contribution to SA’s GDP(%) Source: SA Reserve Bank, Mar 2014

4. Agriculture’s linkages with the rest of the economy • Backward linkages • Purchases of goods such as fertilizers, chemicals and implements • Forward linkages • Supply of raw materials to industry and the food supply chain in general • Approximately 70 percent of agricultural output is used as intermediary products in other sectors

5. Agriculture’s linkages with the rest of the economy • GDP multiplier for agriculture is 1.51. (Mullins, 2004) • Increase of one rand in agric production will result in an R 1.51 increase in the GDP of the country. • On par with the GDP multiplier for the total average economy of 1.58. • Labour multiplier of 24.17 outweighs all other sectors (Mullins, 2004) • Well above the same multiplier for the economy as a whole of 8.16.

6. SARS/Treasury proposal - Impact • SARS/National Treasury proposed to repeal the zero rating of agricultural inputs • Section 11(1)(g), Schedule 1 Paragraph 7(a) and Part A of Schedule 2 of the VAT Act (1991) • Consultations • Reasons • Fraud resulting in misuse of the VAT103 certificates

7. Realities of the sector • Seasonality of production • Cash flow considerations • Financing of VAT for a period of time • Compliance and associated costs

8. Expenditure on intermediate goods and services (2013)

9. Expenditure on intermediary goods and services, interest, labour and investment in vehicles, machinery and implements Source: DAFF

10. International situation of agriculture • Peculiar nature of agriculture recognised in various other countries • Support for agriculture in various forms • EU CAP • Producer Support Estimates (PSE’s)

11. The Producer Support Estimate (PSE)is an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures, regardless of their nature, objectives or impacts on farm production or income.

12. Producer Support Estimates as % of gross farm receipts, 2010-12 average OECD Members Emerging Economies Producer Support Estimates, 2013

13. Role of agriculture in South Africa • National Development Plan • Job creation • Rural economic development • State of the Nation Address • Risks • Natural/climate • International and local economic situation • Policy uncertainty

14. Food security / affordability • Unintended consequences • Needs more scrutiny • Availability of finance to farmers • Production decisions • Supply results

15. Problem statement • Not convinced that zero ratio is root cause of the problem • Cost-benefit analysis of the proposal to repeal the zero rating of agricultural inputs

16. Recommendations / Alternatives • Propose some alternatives • Verification and audit of VAT103 certificates in conjunction with organised agriculture; • Additional field on VAT201 forms for zero rated inputs; • In the case of fraudulent activities, SARS can make full use of the law and organised agriculture will support it • Representative vendors to undertake VAT-duties

17. Conclusion • Neutrality of tax system • Can’t compare a biologically driven sector with other sectors of the economy • System of zero rating is of real importance to the sector

18. Thank you Dawie Maree dawie@agrisa.co.za 012 643 3400 076 376 9254