Cite JOURNAL ARTICLE
Grundsätzliches zur Besteuerung von Grundstücksgewinnen
Credit and Capital Markets – Kredit und Kapital, Vol. 6 (1973), Iss. 3 : pp. 255–294
Heinz Haller, Zürich
Fundamental Observations on the Taxation of Profits from Land
In connection with the aurrent debate on taxation of profits from increased land values, the question is examined of in what sense additional ability to pay taxes occurs in the case of a landowner in consequence of non-realized value increments, and how that additional ability to pay can be taken into account in an appropriate manner for taxation purposes. In the course of the study, which unfolds the whole set of problems relating to “scarcity profits” and their treatment for tax purposes, the principle of the net wealth increment in its usual broad interpretation is called into question. T'he problem is also discussed of when the profit should be subject to income tax in the case of a value increment being realized by sales. The main results of the study are as follows. From the standpoint of an owner’s increased ability to pay taxes deriving from non-realized value increments in the case of developed real estate, it would be advisable to include the increased returns from such real estate (in the case of owner-occupancy a regular adjustment of the “owner’s rent” to the latest market level of rents should be made) in the assessment basis for income tax and, in addition, to tax property on the basis of current market values which fully reflect the value increment. In this way, on the one hand the effectively realized income increase would be taken into account and on the other hand the increased “security potential” provided by the more highly valued property. Taxation of such value increments as an element of income or as income-like wealth increments would give an incentive in the first place for “pseudo-realization” by way of credits, which would have an inflationary effect, and in the second place it would give rise to double taxation if the additional returns from the more highly valued property were included for taxation purposes. Realized value increments from sales of developed land should be treated as supplementary income when assessing taxes, if the proceeds are not used to acquire other property. In the case of “conversion”, increased ability to pay is to be found only in the higher returns and the increased “security potential”. If no property is acquired, the ability to pay is increased by an income increment in the full amount of the increase in value. If the object is to siphon off the benefits accruing from the value increment on the grounds that such benefits arise without an effort or output by the owner, methods wihich may be considered are obligatory participation of the government in the shape of a debt to the government in the amount of the value increment with appropriate mandatory payment of interest, or the levy of the full additional returns deriving from the value increment. Using these methods, it would also be possible to skım off part of the benefits by laying down a rate of less than 100 /o. Their application would involve neither “pseudo-realization” by the taking up of credit nor double taxation. The levy would have nothing to do with taxation geared to an increased ability to pay, but would aim at socialization of “automatically” accruing additional profit opportunities. Whether skimming off the full increment is compatible with the principles of a market economy system is doubtful. In the case of undeveloped real estate, the treatment of unrealized value increments as supplementary income components which increase the ability to pay taxes appears justifiable: double taxation cannot occur owing to the lack of regular returns and the danger of “pseudo-realization” with an inflationary effect is relatively small. From the viewpoint of the land policy objective of exerting pressure on owners to sell and thus increasing the supply of such land, the taxation of unrealized profits from value increments of undeveloped land is to be recommended, though certain exceptions should be made. Sımilarly, in principle there are no objections to the imposition of a ”planning profits levy” (planning value adjustment) with the object of skimming off the value increment caused by authorization of (increased) utilization by building.