South Africa, Republic of

By Godfrey R .A. Dunkley

Revised August 9th. 2007

History Of Land Taxation

South 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-year updating. This staggering had little effect on the results. 5.

Rating Surveys

The findings of the two surveys are given in Chapter Fourteen of “That All May Live” and titled “Effects of Municipal Rating on Progress”. The results may be summarised as follows:

  1. In the period 1951 to 1984 the number of cities and towns on Flat Rating reduced from 187 to 61, whilst those on Site Value Rating increased from 36 to 98 in the same period. Some changed to and some from Composite Rating and a few were absorbed into larger towns in that period.
  2. In the first survey 1959 to 1979, the cities on Flat Rating, or Improved Value Rating, showed a total value increase of 536.5% over the twenty-year period whilst those, which were on Site Value Rating for the full period, showed an increase of 940.3%. Those which changed to SVR showed an even larger increase, namely 1013.2%
  3. The corresponding increases for the ten years of the second survey, 1974 to 1984, were 171% for Flat Rating, 328% for SVR and 357% for those changing to SVR.
  4. The growth is even more remarkable when backing out the land values and considering the growth in improvements only, or increase in capital investment, as a percentage over the ten-year period. This study was confined to the 48 largest cities each with a total value over R200 Million in 1984. Of these 33 were on SVR and showed an aggregate growth of 413% compared to 282% for the 13 on Composite Rating and 189% for the two remaining cities on Flat Rating. This is valid evidence to show that the rating of improvements provides a strong incentive for capital investment to go elsewhere, namely to those cities which collect their rates from site value only.
  5. A large number of small towns on Flat Rating in the Cape showed very little growth. This could be partly due to their geographic position and partly due to their system of rating all improvements.

It is interesting to note that the remaining two large cities on Flat Rating were Cape Town and Port Elizabeth, both major ports and tourist cities and one the legislative capital of South Africa. They should logically have kept pace with the average growth of major cities. However their percentage growth in all instances has been low compared to the average for RSA and particularly against those cities on SVR.

The other cities, which rated land at a higher percentage than improvements, showed growth in both total value and capital investment approximately in proportion to the incidence of rates on land vs. improvements. As a group their growth was between those on SVR and Flat Rating under all the different conditions considered. 7

Future studies could be complicated by a variety of changes that have and are taking place in RSA. To start with all the independent homelands have been reincorporated into the Republic of South Africa. This has made a big difference to government statistics and in particular to the total population. It has also allowed for major changes in the population distribution and increased city population beyond normal growth because of squatters.

The four former provinces together with the former independent Homelands have now been split into nine provinces with mainly new boundaries except for the Free State. In addition many predominantly lower priced and black squatter areas have been incorporated into former white cities and in many cases completely new boundaries have been established.

Around Cape Town many smaller municipal areas had also been incorporated into cities. This makes it almost impossible to compare pre 1996 to post 1996 municipal and city statistics and growth. It will take a considerable time to ascertain growth trends. An extra complication at the time was that the Cape Town valuation roll eventually reached sixteen years out of date and reflected values between some 5% and 50% of the actual market value.

A greater Cape Metropolitan Area was established and brought together thirty-nine former municipal areas with a population of approximately two and a half million people. This was subdivided into six Substructures under the Cape Metropolitan Council. These included a mixture of different percentages of composite rating and flat rating. This opened the opportunity for introducing SVR.

The South Peninsula Municipality, one of the six, appointed a special Rating Committee chaired by Councillor William Stibbe. Site Value Rating was recommended and approved by Council, to be introduced in July 1998. A new valuation roll was to be drawn up for SVR.

Councillor Stibbe was then nominated onto the Cape Metropolitan Council and they also agreed to follow suite with SVR. However three of the six municipalities disagreed. Three started preparing new valuation rolls suitable for SVR. These were almost completed when a group of citizens threatened legal action based on technicalities. This threat, coupled with a pre-knowledge that central government were preparing a Bill to enforce Improved Value Rating, put a stop to SVR

In other parts of the country there was the risk of some municipalities going the other way. City boundaries had been changed in many parts of RSA and city councils were made up of a totally new group of councillors, many of whom have never had occasion to pay rates nor consider their effects.

It can be shown that in the absence of a land tax, the present taxes contribute to unemployment and migration to squatter camps. Value Added Tax (VAT) can be shown to be a tax on labour that has to be met by additional wages, a cost to the employer. At each level of production, from primary industry to finished product and marketing, approximately half the value added is due to labour. So all materials and services purchased have many layers of labour included in their cost and each layer of labour has its cost increased by 14 % VAT. In effect the VAT imposes a tax of nearly 14% on the labour content of all material and services input. This is enough to put most semi marginal industries and a large number of farms out of business.

Further estimates show that the rental value of land in South Africa in 1986 was of the order of 64% of the 1986/87 Budget.6.

As most taxes eventually come out of rent, the economic rental value is what is left after the existent taxes have been extracted from the economy. Where the taxes applicable on marginal land are greater than the potential income from that land, either economic production ceases or the standard of living is drastically reduced.

If the sum of all existing taxes, at a particular point in time, are added to the total annual rent of a nation at that same point in time, the final quantity or sum would give a fair indication of the total rent available within that nation. For South Africa the 1986/87 figure would have been 164% of the budget. If government, in lieu of other taxes, collected 70% of this total natural rent, the sum would exceed the budget of that period. (164 x 70% = 114.8% of Budget)

The subject of land taxation is more in the public dialogue now than in many a decade and many people in government realize that something has to be done about distribution of land ownership and land tenure. It is unlikely that the subject will die a natural death too easily. It is only a pity that there is not a strong organization to lobby the cause of a land tax to replace all existing taxes.

The Republic of South Africa has been amongst the world leaders in collecting municipal or local government revenue from the capital value of land. Looking at the country as a whole, some 70% of city revenue was previously collected by Site Value Rating, (SVR), where there is no revenue collected from improvements. For the remainder, a larger portion came from land values than from improvements, with only two major cities were collecting an equal rate on both land and improvements, i.e. Flat Rating.

For the most part there is a distinction between rates and services. Services are normally charged as close as possible to cost and capital replacement / amortization, and contribute little towards general municipal revenue or expenditure. However there has been a major upset to this principle in recent years because of political agitation and the growth of a culture of non-payment. This reached serious proportions to the extent that the central power supply authority, Eskom, threatening to cut off power to large areas. Many local authorities are effectively bankrupt and this could affect current thinking on municipal revenue systems.

The struggle for land ownership and the right to land tenure is reaching serious proportions. In the past this was partly hidden by the controls of apartheid. With the removal of Influx Control, squatter camps started growing around many towns and villages as well as major cities throughout South Africa. The Independent Homelands had been heavily subsidised by the Republic of South Africa and were thus able to work on a different tax structure to that in the Republic of South Africa. This was a deliberate attempt to encourage the growth of industry and other employment opportunities in areas which would have been close to marginal because of their adverse location relative to markets, and their lack of infrastructure. In this respect, the Apartheid government did the right thing but for the wrong reason. The present government have unwittingly done the wrong thing.

When the above areas came back into the Republic in 1993, these subsidies were reduced or removed and the former Independent Homelands came under the Republic’s tax structure. This had the immediate effect of shifting the economic margin of production. Once viable industries and business undertakings were rendered unprofitable. The increase in taxation had placed them beyond the new economic margin.

A typical case is a border industrial area near East London, which came under the Ciskei tax structure. Before 1994 it had approximately thirty thriving industries employing thousands of local blacks. A few years later only about eight of these industries were still operating, the others were closed down by the new taxes. Thousands of labourers became unemployed with no alternative employment in the area. Many other areas have suffered a similar tragedy. The Department of Finance and their Tax Consultants refuse to address this problem. In desperation the unemployed continue to migrate and settle in squatter camps around the cities and have added an unprecedented economic burden to those cities. In spite of the current housing policy there are some five million or more squatters in South Africa.

There has been a strong move towards redistribution of land and restitution of land rights taken away from large numbers of people. This was done during the days of the apartheid policy of moving blacks from white areas to black homelands. Much of this is being reversed by court decisions and the Ministry of Land Affairs is working towards introducing a land tax in rural areas. This is being opposed by all farming organizations.

The Minister at the time was aware that a land tax should apply to all land including urban land, and that it should be offset by a reduction in VAT or other taxes which impose a burden at the margin of production. However his portfolio only covered rural land and he had no say over urban or mining land. The idea of a land tax was therefore referred back to the Katz Tax Commission.

This Commission was appointed by Government on the 22nd June 1994 to investigate and report on the overall tax structure of RSA, together with recommendations. In their Third Interim Report, dated 28 November 1995, under the heading Land Tax, page 29, the following appears: 4.2.3 In the light of the foregoing considerations, the Commission does not recommend a national land tax in the short to medium term.

4.2.4 however, the commission believes that there is sufficient evidence to justify the possible implementation of a rural land tax at a local government level.

The Tax Commission subsequently recommended an additional tax of 2% on all rural land and improvements without any talk of offsetting it against other existing taxes. Their tentative views include the following: (October 1996)

  • The market value of land and improvements should form the tax base.
  • Valuations should take place at least every five years.
  • The owner of the land should be liable for the tax.
  • The tax rate should not exceed two percent a year.
  • Relief through the use of rebates and referrals should be kept to a minimum.
  • The tax should be levied annually but could be collected at shorter intervals.

The above is not in line with recommendations made on behalf of the International Union for Land Value Taxation and Free Trade in the following respect:

  1. The tax should be on land only and not on improvements.
  2. The tax should be on all land including urban land.
  3. The tax should replace existing taxes, which contribute towards unemployment because of their effect at the margin of production.
  4. There should not be a limit of two percent.

A base line rebate should be allowed provided it is a fixed monetary amount for all owners irrespective of the value of their property. The amount of this rebate should be pitched at a level that will exempt the large number of sub-economic houses. This will simplify both the preparation of the valuation rolls and the administration cost of collecting small amounts at the lower end of the scale. The poor will be given some relief, the tax rate will be slightly increased to meet the same budget requirements and the wealthy will pay a little extra.

Act of Parliament

In 2003 a Portfolio Committee in Parliament spent many months debating the proposed Property Rating Bill. A substantial amount of evidence was provided by various Georgist organizations in favour of SVR and nothing concrete given against. However there was a determination to impose rates on improvements. Even appropriate definitions had been withdrawn from the final Drafts of the Bill; without which there could be no inclusion of other forms of rating

Parliament passed the new Act in 2004 that made Improved Value Rating compulsory. Many municipalities are still in the process of implementing this Act.



South Africa has enjoyed a long history of successful application of Land Value Taxation. First there was an annual quitrent, then a duty to the state, then municipal rates. Most municipalities have had years of experience at drawing up valuation rolls based on separate land and improvement values.

All land now comes under the jurisdiction of some municipality. This includes agricultural land, government owned land and tribal land. Many smaller municipalities have been incorporated into larger ones and the total number reduced. Thus it would be relatively easy to incorporate LVT for central government into the local government rating system, covering the entire country.

South Africa has a strong and stable government in spite of temporary weaknesses in many departments. There was a peaceful transition from an oppressive regime to a freely elected government with a written Constitution and a Bill of Rights. When convinced of the value of LVT the government would have the strength to introduce it.

The country is blessed with vast mineral wealth and natural resources, a good climate, many tourist attractions, an abundance of fishing rights and busy shipping routs, to name but a few. When these are all taken into account as being included in the definition of land and subject to some form of land tax, RSA is potentially a very rich country. It is the constitutional duty of government to create conditions for free enterprise to flourish and then collect the resultant rent. There will be enough to meet all reasonable government expenses at all levels, to finance new and necessary infrastructure, to build up a reserve for unforeseen disasters and to pay a fair Basic Income Grant or Citizens Dividend to all citizens.


With the change of government there was naturally an attempt to level the playing fields to make up for the years when the masses were underprivileged. This resulted in qualified and experienced people being given early retirement or a retrenchment package. The outcome has been a serious shortage of both skills and qualified trainers. Employment quotas designed to equalise employment opportunities across all racial groups have prevented employment of the most experienced people for particular jobs with resultant inefficiency. This has also caused qualified professionals to leave the country; further aggravating the situation. Many who understood the advantages of SVR were lost from the system.

During presentations and discussion on the Property Rates Bill in 2003 there was very little support from municipalities for SVR. The new municipal management did not understand.

Through lack of skill, training and experience, many in government are diffident about making decisions and the whole process of transformation has been slowed down. Committees, conferences and workshops are ever increasing in number but little comes of them. Even then, decisions are often short sighted and suffer from unforeseen results.

Apart from under staffing and lack of skills in many departments, there is a lack of communication between different departments. Heads of departments seem scared of over-stepping their job mandate and interfering with other departments.

There seems to be a dearth of vision of the overall requirements of both the economy and society.

The policy of Black Economic Empowerment together with an extreme shortage of qualifications and skills led to head hunting at highly inflated employment packages in an attempt to meet the imposed quotas. As a result, large parts of the improvements that have taken place have been channelled to a small percentage of newly wealthy and powerful people, some of whom have made fortunes in a very short time.

By contrast there is extreme poverty and unemployment. The official figure for unemployment is based on the number currently officially looking for employment. It does not include those who have given up or are not registered. Unofficial figures of unemployment are approximately 40%. In some regions it is estimated to be in the vicinity of 80%, accompanied by grinding poverty. This has become increasingly worse since the end of Apartheid.

Under Apartheid there was an attempt to provide employment near to, and subsequently within, the Bantustans. When some became independent homelands they were subsidised and had their own local tax regimes, different from that in RSA. Together with the Pass Laws this encouraged workers to stay away from the white cities. After 1994 these states were re-incorporated into RSA and came under RSA tax laws. Large numbers of industries closed down as they became unprofitable. Unemployment soared and workers flooded to the cities and towns. If the present taxes had been replaced by LVT this would not have happened. The previous government did the right thing but for the wrong reason. The present government have done the wrong thing through lack of understanding.


The background to the new South Africa presents wonderful opportunities to establish a society based on justice and equity for all citizens.

The Preamble to The Constitution of the Republic of South Africa, 1996, states that:

“We the people of South Africa . . . . . Believe that South Africa belongs to all who live in it, united in our diversity.”

The Freedom Charter (1955) of the African National Congress (ANC) is what the ruling party fought for, and guided the transition of government and the drafting of the Constitution. The Bill of Rights is in turn closely aligned to the United Nations Charter of Human Rights In it are stated the following:

We, the people of South Africa, declare for all our country and the world to know: That South Africa belongs to all who live in it. The people shall share in the country’s wealth. The land shall be shared among those who work it. Etc.

Considering the above positive start, it would have been logical for the new government, with an absolute majority in parliament, to change the tax system so as to encourage an economically driven distribution of both land and opportunity to the people in general. This could be done whilst still honouring the concept of ‘Willing Buyer / Willing Seller’

Many of the existing problems could be significantly reduced by a change in the tax structure. It is believed that there is nothing in legislation to prevent the necessary changes. Marginally productive land, where the profits, after paying wages, interest on capital and the cost of materials and services, leave a return of less than the imposed taxes, will eventually become un-productive and cease employing labour. If these deadweight taxes were abolished and replaced by LVT, this type of sub-marginal land would be relieved of taxes and pay very little if anything in land rent. The land would have very little market value and would once again become productive.

In other words, the new RSA constitution could be realised via the un-taxing of work and the collection of land rent for the benefit of all via LVT.

A national land register should be seen as a prerequisite. This could be easily compiled with the use of modern equipment and incorporation of all municipal updated valuation rolls.


Over the years landlords have been able to evade their duties relating to the ownership of valuable land. Traditionally landlords collected the rent of land and used a portion thereof to support the king’s court. Land lording was not originally a problem in RSA but ownership of land demanded either rent or the duty of defending the state and keeping the peace. This has given way to the modern tax system where labour and the products of labour have to carry the tax burden.

Existing taxes are a direct cause of unemployment. Near-marginal land is only capable of producing a slight profit that is not able to carry any form of taxation and is therefore rendered economically unproductive by taxes. This puts both land and labour out of production and stops the flow of revenue. Secondly, these taxes often increase the cost of labour to the extent that the overall cost of employing is less than the market return. Marginal labour becomes unemployed even on prime land.

As previously stated, the new government, through lack of understanding, destroyed the municipal Sit Value Rating system that covered 70% of rating in the country and was regarded as one of the best rating systems in the world. This could have formed the foundation of a tax system for central government. The result has been to encourage the withholding of vacant and under-utilised land from the market and to work counter productive to government’s plans for land distribution and increased employment.

In the case of Cape Town, 10% of land is shown as vacant and the owners have been given a gift of R130 million per annum compared to what they would have paid under SVR. This does not take into account the loss from underdeveloped land.

There has been a lot of talk about an agricultural land tax but this would be limiting and applied as an additional tax. Naturally the economically threatened farmers are up in arms against the idea. This would further damage the economy.

There has been talk of abandoning the system of ‘Willing Buyer / Willing Seller’ because there is a demand side market with government as the main and committed buyer. As a result speculative prices of land are increased when government wishes to buy. They have not yet realised that a change in taxation can also bring about a change to a supply driven market in land.

Is anyone in government capable of both understanding the mistake and correcting it? Will they realise the importance of bringing about a complete change in the tax structure and have the power to carry it through?

It is feared that, without the justice, equity and efficiency of Land Value Taxation, many of the economic and social problems in RSA will not be solved nor the dignity of the people restored. The wealth gap and poverty will continue to increase.


1. T R H Davenport and K S Hunt, The Right to the Land, (Cape Town, David Philip 1974) p.3

2. Ibid. p. 6

3. Frank A W Lucas, Justice and Social Reform, (London, Land and Liberty)

4. Arthur W. Madsen, Land Value Taxation Around the World, Chapter; The Union of South Africa. (New York, Robert Schalkenbach Foundation, 1955) p. 41.

5. Godfrey Dunkley, That All May Live, (Johannesburg, A Whyte 1990) p.119 to 127.

6. Godfrey Dunkley, Land Tenure: A Time Bomb Ticking in South Africa, (Cape Town, Dunkley, (1991) p.15.

7. Some of the above information previously published in ‘Land Value Taxation Around the World, Third Edition 2000’, The American Journal of Economics and Sociology. Edited by Robert V Andelson