Tax for Lands’ Sake
31 October, 2013
To boost cultivation of agricultural land and raise its share in economic value making chain, Georgian legislative body ponders over the idea of applying property tax to all agricultural lands, both cultivated and non-cultivated. Petty farmers feel disappointed but economic and agriculture connoisseurs believe this is the only remedy to prompt small farmers set up cooperatives and consolidate lands and efforts for the sake of higher economic benefits.
There are around 800 hectares (ha) of agricultural lands in Georgia and
only its quarter has been cultivated up to this year. As new government launched an agriculture support program aiding farmers by cheap credits, the cultivated space increased up to 450 ha. However, it did not induce farmers to pool their lands. Dissected arable lands and pastures still remain as one of the major problems that makes agriculture non-profitable in Georgia. The point is that 78% of the entire agriculture land pool of the country is made by small farmers owning around 1 ha land plots whereas up to 5 ha large agriculture lands are exempted from the property tax conventionally known as land tax. According to Paata Koghuashvili, an agriculture analyst, the exempted small land plots figure around 500 thousand ha totally while the average tax on land is GEL 80 per 1 ha. Yet, its rate varies from GEL 50 to 100 from region to region. The simple calculation suggests that even based on the lowest tax of GEL 50, it comes out that at least GEL 25 million of land tax never enters the local budget as far as the land tax belongs to municipalities. This is a huge sum if we take into account the centralized taxation system of Georgia that leaves a couple of taxes to local budgets such as land and gambling taxes. The land tax exemption boosts further dissection of agriculture lands as owners try to elude taxes and register lands in separate ownership. More than that, as far as agriculture is considered as a non-profitable business in Georgia the land price is far below the international level and as the liberal reforms of 2004-2012 made all lands available to purchase to both local and foreign investors without particular requirements of investment plans on agriculture land, they became a sort of investment tool to foreign investors. As a result, around 30-35 ha of agriculture lands acquired by foreign investors [ mainly Indian, Chinese and Arabian ones] for alleged investment projects lay barren adding no value in the country’s economy and only securing future profit to their owners as normally land’s price goes higher with the years. And although a law on cooperatives aimed on pooling lands and enhancing production in agriculture industry entered into effect this spring, small farmers do not harry to amalgamate land resources and efforts as far as the concept of cooperatives based on joining assets and labor remind them the notorious collective farming practice of the Soviet Past, Davit Mamukelashvili, an economic analyst, explains. Therefore both Koghuashvili and Mamukelashvili believe the only way to foster cooperatives is taxation of all lands without exemption.
“This will compel farmers to merge under cooperatives that offer the five year exemption period on all taxes plus other state preferences and subsidies that are expected to come in the way of cooperatives in future,” Mamukelashvili said. Koghuashvili believes a law on lands must also include strict obligations on presenting very detailed investment plan and social-economic strategy the investor offers in case of acquiring or renting agriculture land.
“Investment in lands is not the money paid for land but the enterprise and production that is set up on it,” Koghuashvili said.