CONSULTANTS' VIEWS ON THE VIABILITY OF AN INCOME EQUALISATION DEPOSIT (IED) SCHEME FOR COMMERCIAL FARMERS IN SOUTH AFRICA

Abstract

Recent research suggests that an Income Equalisation Deposit (IED) scheme could be a feasible new risk management tool for commercial farmers in South Africa. This prompted a study of practicing consultants' (tax experts) views on the viability of an IED scheme, how it would relate to existing tax provisions for farmers, and what types of farmers would be likely to use the scheme. The results would show whether or not the consultants' views correspond with research recommendations. Twenty-four tax experts surveyed mainly in KwaZulu-Natal, and in the Maize Triangle and surrounding areas, in 2000 perceived that the scheme could be feasible, help farmers to avoid over-capitalising during years of good cash flow, and provide liquidity in “lean” times. Most of them would support recommendations that the Land Bank drought relief scheme for livestock farmers be replaced with an IED scheme that all farmers could access. They also felt that the capital expenditure and accumulated depreciation allowance provisions available to farmers should remain in place. In their view, farmers with higher net farm incomes, lower debt/asset ratios, more variable net farm incomes, and less off farm income would more likely use an IED scheme, and high risk maize farmers are more likely to use an IED than are low risk livestock farmers. Since maize farmers have been the main beneficiaries of past government drought aid, this could mean reduced demands on government drought relief funds in future if an IED scheme is introduced.