The research aims to highlight the need for parity of the parties in land relations in the agricultural industry and develop a mechanism to control it under conditions of digitalization and economic growth. To achieve research goals, we used general economic methods and approaches to assessing income-generating real estate (resource-intensive, profitable, and comparative). The term “parity of land relations” was introduced due to the evidence of its necessity and feasibility. Besides, we developed an approach to control the parity of land relations. The parties to land relationships can be (1) the state as the governing and executive apparatus of cadastral valuation of land, (2) local authorities as recipients of land tax, (3) landowners, (4) tenants, or (5) producers of goods. In addition, we described the conditions of parity at each stage. When choosing the method for calculating land rent from net income, one should proceed from the ratio between the land rent and the entrepreneur's profit. As for the calculation of land rent, we advocate the requirement that the rent be equal to the amount of land rent. As for the land tax considered based on the rate of the cadastral value, we list the cases when it should be equal to the personal income tax on the land rent). The last parity condition is that all three methods of calculating land tax (from cadastral value, land rent, and rental charge) are mutually equal. Basic parity implies that the cadastral value tax and the land rent tax are equal. Such parity is achieved by adjusting the capitalization rate or land rate tax. More than that, we enabled the unique technique to estimate the value of agricultural land based on the economic results of the agricultural process. The results were calculated in a computer-based economic-mathematical model using the financial records of agricultural organizations collected by the Ministry of Agriculture of the regions using the 1C accounting software. Scientific relevance lies in (1) the proposal of the term “parity of land relations in the agricultural sector of the economy,” (2) the development of conditions and the scheme of its formation and control.
Parity ⸱ Cadastral value ⸱ Land rent ⸱ Rental charge ⸱ Land tax ⸱ Capitalization rate 1
The ongoing digital transformation of agriculture implies (1) fundamental
modernization of the agricultural process, (2) increase in the volume of products,
(3) improvement of the quality and competitiveness of agricultural products by
enhancing the organization and management of production, and (4) accelerated
introduction of innovative items. Document management will be significantly
reorganized. The analog system will be replaced with digital automation of
accounting and reporting of agricultural producers, management of the activities of
their divisions, and monitoring and control of executing technological operations.
The speed of training in “precision agriculture” technologies, the autopilot of mobile
machines, and the speed of introducing other innovations will increase.
Digitalization will fundamentally affect land relations since almost all
innovations will influence land use and increase their efficiency. We are convinced
that the price of land plots will rise because land in agriculture is inelastic. Currently,
the land is expensive due to the volume of production or the volatile cost of other
production factors. For these reasons, it is necessary to improve the approach to the
valuation of agricultural land. In this respect, the digitalization of the economy
provides numerous opportunities. In particular, the transition to automatic formation
of financial accounting and reporting of all producers of agricultural goods at the
municipal, regional, and national levels allows one to assess the land plot based on
the economic results of production, considering market tools and indicators
All these possibilities create conditions for the formation of parity of land relations in the agricultural sector of the economy. Parity of land relations is a sustainable relationship between actors with the authority and ownership of land (right to use, own, and dispose of land) regarding the attribution of land use results as the primary means of production in agriculture. In modern agriculture, the subjects of relations are the government with local authorities, direct owners of land plots, and their tenants. The economic content of land relations is expressed using indicators-criteria: cadastral and market value, land rent, land tax, and rental charge.
To achieve the research goals, we used general economic methods and our own
approaches to assessing income-generating real estate (resource-intensive,
profitable, and comparative). Also, we referred to federal standards and systematic
recommendations, such as (1) Federal Valuation Standard “Real Estate Valuation
(FVS No. 7)”
On the one hand, the government, represented by the Federal Land Cadastre Service and the Federal State Budget Institution “Center for Real Estate Valuation,” is the organizer of land relations among the subjects of land relations. Moreover, since 2017, due to the new methodological guidelines, the government has become the executor of agricultural land valuation. On the other hand, the government, represented by the Tax Service (at the municipal level), is the beneficiary of the results of such relations. Consequently, the government is interested in increasing the cadastral value of the land; it can satisfy this interest. Therefore, in the valuation process, the government seeks to obtain excessive land rents and apply the lowest capitalization rate. Additionally, the government receives benefits when the land tax rate is high. Nonetheless, due to the low solvency of agricultural landowners (especially land shareholders) and tenants (producers), preferential taxation should be applied. We should note that farmland has a specific feature: it is challenging to compare farmland with real estate land, which requires lower land tax rates.
The tenant-producer holds the opposite position; they need good land plots but low rents. A market category, such as rent, is highly dependent on the cadastral value of the rented land because the size of the rent has reasonable lower and upper limits. Rent cannot be less than the land tax, and the landowner strives for the maximum possible rental income, which is the primary result of the cadastral valuation of agricultural land exploitation, calculated by capitalizing their cadastral value.
Landowners want to have a high cadastral value of their land to explain the amount of rent and the offer price in the event of a land sale. However, landowners do not want to pay a large land tax. They are interested in a high cadastral value and a low land tax rate. Based on these characteristics of the subjects of land relations, the establishment of full parity requires (1) the improvement of the valuation technique, (2) significant conciliation procedures, (3) business games, and (4) application of optimization models according to the criterion of maximum economic growth. However, on a formal level, it can be achieved as follows (Fig. 1).
Parity formation should begin with the analysis of the methodology and results
of the cadastral valuation of agricultural land. The first step is to determine the net
income and its distribution between the land rent and the entrepreneur’s income.
The first and most important condition of parity of relations between the landowner
and tenant of the land plot is fixed at this stage. The long-standing residual principle
of distribution, which has begun to change recently, is used to give preference to
the tenant (entrepreneur), establishing the first income, providing the land rent with
residual funds from the net income. We believe that it is possible and even necessary
to use the principle of distribution of the final economic result proportional to the
share of participation of the landowner and its tenant. In turn, the participation of
the landowner and tenant can be assessed using the following ratios (respectively):
(1) natural soil fertility and induced soil fertility; (2) constant costs and variable
costs in the total estimated cost; and (3) cost index and yield index, which form the
intensification efficiency factor
Land Registry Office State cadastral
valuation of agricultural land s r e c u d o r p s t n a n e T 1.2
1.3 5
We suggest considering the following version: an economic result divided in proportion to the ratio of constant and variable costs in their total cost. Land rents and profits of the entrepreneur are considered according to formulae (1.1) and (1.2); they are displayed in cells 1.1 and 1.2. In particular, the formula in cell 1.1 is: Rz = (W - (VU + C)) * C (VU + C) (1) where: W – production value, thousands of rubles/ha; U – crop yields, cwt /ha; V – constant of variable costs, thousands of rubles/ cwt; С – constant of fixed costs, thousands of rubles/ha.
In this formula, the expression consisting of the numerator in parentheses (VU+C) is the production cost. There is a difference between the cost of products (W) and production costs (VU+C); it is the net income. We think that it should be distributed between the owner and the entrepreneur as land rents and net income. The number С/ (VU+C) is the share of constant costs in their total amount, taken as a share of land rent in the distributed income.
The fraction in formula (1.2) VU/ (VU+C) is the ratio of the variable part of the costs to their total sum. This number means that the share of the entrepreneur’s income is equal to the share of the variable costs in the total amount. The entrepreneur’s contribution is determined by the amount of costs associated with the use of seeds of high-yield varieties, doses of mineral fertilizers, plant protection agents, and other intensification factors that form artificial fertility and create rents of the second type (rent II). Constant cost is related to technological properties and natural fertility of land plots; it forms a land rent of the first type (rent I) and an absolute rent. The first parity condition is expressed as the equality of two indicators in formula (1.3) in cell 1.3 in Fig. 1. The process has two directions.
First, we should dwell on cell 2 – “capitalization factor.” This set can be as large as the Land Cadastral Assessment Guidelines set. We can divide the land rents by capitalization factor and move to cell 3 – “cadastral value,” then we can multiply the result by “land tax rate,” and thus, determine the amount of this tax in cell 4 under number 1).
Second, we should proceed to cell 4.2 (“land tax”). In formula (5), we can multiply the land rent by the personal income tax rate and find the second value of the land tax (under the number 2). If all formulae are written correctly, and the land tax rates and personal income tax comply with the law, the total tax must be equal. The calculations given above comply with the second parity condition. The cadastral value is the basis for taxation only because the taxation of real estate is specific; also, it is a material economic category, while land rent is a financial source of land tax, but its form is unacceptable for taxation. In other words, the land tax on the cadastral value of the land plot is just a more convenient form for calculating and collecting. However, the amount should be equal to the tax on land rent and the tax on income received from the land plot by its owner, regardless of business activity. Since this is the case, we can write formula (9) (formulas 6−8 are placed in Fig. 1 cells 5–7): and formula (10):
z = Sз * Кzn= Rз ∗ КPit ; Sz * Кzn =
Rz ∗ КPit, (9)
k = K Кzn , .
, = Rz * K
, ≠ Rz * K ,
If the value of the land tax obtained by formula (1) is not equal to the value obtained by formula (2), there is no parity: (11) (12) (13) (14) (15) Therefore, the capitalization factor (Кк) is incorrect; it must be overridden by expression (15):
This formula (2) is written in cell 2 (“capitalization factor”), but it was not used. The capitalization factor is subject to adjustment to restore parity (formula 14). This situation is due to the fact that the current cadastral land valuation technique does not have clear criteria and standards for determining the factor. If the capitalization factor is fully justified or established by law, the land tax rates can be adjusted. In any case, formula (15) expresses the second condition of parity of land relations, in this case, between local self-government bodies and the owner of the land plot. The scheme (Fig. 1) contains another route: from land rents down to the rent, and from it, the path goes to the rent tax, which is calculated according to formula (7). The tenant and the landowner use these factors to trade between them to establish an acceptable rent for both. Cell 5 contains settings on the third condition parity according to formula (6). Parity on the third condition requires equality between rent and land rent (calculated rental income). We also check that any of the land tax formulae give the same result. If the rent is equal to the land rent (ideally, it should), then personal income tax from the rent, defined by formula (16): = A * K pit , z (16) should be equal to the land tax calculated by the two variants presented previously ( N z1 = Sz * К zn (4) и z2 = Rz * К (5)). All results must be equal or have a few differences. There is the basic condition of parity of land relations in the agricultural sphere. We should note that all of the above applies to personal income tax on all rents, although to avoid double taxation, this tax must be calculated by the formula:
N a = ( Az − N z ) * K pit ,
The results of the three variants of calculations (formulas 4, 5, and 16) must be equal or have a few differences in cell 7. This cell is the result expressing the aggregate parity of land relations, combining the control results of the three particular conditions listed above. However, if the land tax rate is 0.3% of the cadastral value and it is privileged, the land tax on the value should be less than the tax on the land rent. The formula (5) of cell 4 and the expression in cell 7 must be adjusted based on the condition (18):
N zl = N a * К znl , К zn pol (18) where: Nzl – amount of preferential tax, rubles. /ha; Кznl – preferential land tax rates, %; Кzn pol – land tax rates, %. 4
Agricultural land is inelastic. Therefore, currently, the land is expensive and will
be even more expensive in the future because of digitalization and the growing
economic agricultural business. The land shall be using the operating technique.
First, the land should be valued at the lowest interest rate of the bank deposit.
Second, there must be additional lowering factors. As a result, the opposite happens:
it is recommended to use a technique with sufficiently high bets
Table 1 presents the results of calculations for several variants to increase the value of the land rent capitalization factor. These results were obtained when assessing the initial data on land rent according to the author’s technique.†. As such, the impact of the land rent capitalization factor, namely, the importance of the factor in the valuation procedure, is visible. † Method and electronic model of updating the cadastral value of agricultural land, based on the use of information of the annual accounting report of agricultural organizations accumulated by the Ministry of Agriculture of the constituent entities of the Russian Federation. Тable 1. Dependence of cadastral value and land tax on the value of land rent capitalization factor when assessing the results of winter grain crop cultivation in agricultural organizations of the Saratov region in 2016.
For the numerical example, in the first and second versions, we took such
capitalization coefficients that they are in the range of the actual data given by
Thus, we can get different results of the cadastral value of land and the amount of land tax if we manipulate the value of the capitalization coefficient at the same amount of land rent: the most crucial evaluation criterion. Therefore, the method of determining the capitalization rate of land rent should be carefully justified. In any case, this circumstance requires developing conditions and a mechanism for controlling the parity of land relations in agriculture. Furthermore, shareholders can use land rent, calling it “imputed income,” and if the owner uses the land themselves, call it “alternative costs.” 5
The research results allow one to justify the need to introduce the term “parity of land relations in the agricultural sector of the economy,” to develop conditions for the formation and a procedure for ascertainment existence and control. Parity of land relations is a sustainable relationship between actors with the authority and ownership of land (right to use, own, and dispose of land) regarding the attribution of land use results as the main means of production in agriculture. The formation and functioning of parity relations imply several conditions and criteria.
The first condition implies that the parity between the landowner and the tenant is established during the cadastral valuation of land to distribute the net income received from the land plot. The parity between the land rent and the entrepreneur’s income is determined so that the land rent and the net income must be proportional to the contribution of each of the entities mentioned above to the creation of the entrepreneur’s income. Net income is identified by the following ratios (respectively): (1) natural soil fertility and induced soil fertility; (2) fixed costs and variable costs in the total estimated cost; (3) the cost index and the return index, which form the efficiency coefficient of intensification.
The second condition states that the land tax, which is obtained when calculating the percentage rate of the cadastral value of the land plot, is equal to the tax on personal income from the calculated rent for the land. The parity between the owner of the land plot and the local authorities is regulated by the capitalization coefficient of the land rent if the interest rates of the land tax and the personal income tax cannot be changed; or by the interest rate of the land tax if the capitalization coefficient cannot be objectively changed.
The third condition claims that the landowner and its tenant must maintain parity in the amount of rent. Thus, the rent is equal to the estimated rental income (land rent) that cadastral officers use when calculating the cadastral value of land plots.
Finally, according to the basic condition of parity of land relations in the agricultural sector of the economy, the results of both versions of land tax calculation should be equal to the tax on income of individuals from the rental charge (with land tax in it). Therefore, the land tax calculation results for the three options should be equal, justifying compliance with the three primary conditions of parity. treatment in agrocenoses of the Volga region. Journal of the Russian Academy of Agricultural Sciences, 3, 28-30.