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EXPLORING THE MOST EQUITABLE TAX SYSTEM
As the Government begins to operationalise the Property Tax law of 2009, an argument for the replacement of income, corporation taxes and even Value Added Tax with A Site Value Tax (SVT) has been made, not by an economist, but by civil engineer Nigel Gittens in a book On Development.
Gittens makes transcending claims for the conception and implementation of a SVT that will be equitable, generate increased revenue for the government and create jobs by making the economy more productive.
“Land value tax or site value tax recognises that it is the site itself that is primarily responsible for the income earned” and therefore it is upon the site that generates the income that the SVT should be placed, argues Gittens a graduate civil engineer of the University of the West Indies, with an MBA from the Henley Management College.
The author does not claim original thinking on the SVT but locates the theory of the tax in the pioneering work of Adam Smith, David Ricardo and especially Henry George, a 19th century American economist who promoted the idea of the Single Tax in his Progress and Poverty. In summary, George argued against government penalising income and investment and advocated that taxes should be placed on the value of land and its productive capacity. George, whose ideas were popular in the late 19th century, argued too, that placing the tax on the economic value of the land would act as an incentive to land owners and users and force them to put their land to work at the highest possible productive value.
“The overall consequence of this measure (SVT) would be a restructuring of land use and values,” says Gittens. He contends that the forced greater and higher value usage of sites (lands) will bring more resources into productive use including creating employment, increased opportunities for investment capital, “most of all government revenues would now increase as more lands are put to use.”
Gittens makes a simple assumption: greater employment in the economy will result in a higher quantity of tax to be paid by increased numbers of workers employed through the productive and profitable occupation of lands.
Very relevant to the situation of today with a property tax being implemented, Gittens contends that land and building taxes as applied allow the owners of lands to pass on the taxes to those who rent premises. He deems the lands and building taxes to be regressive: “persons on lands of lower value usually find themselves paying a larger tax than households on lands of higher value.”
So too, Gittens claims that people at the lower economic level “end up paying the bulk of the taxes levied by the corporations”, as the large corporations find ways and means of passing the taxes on to consumers.
On the issue of transparency, he notes widespread tax evasion exists under the present system of income, corporation and land and building taxes–and those are claims that have consistently been made by accountants, finance ministers and ordinary citizens.
“The first advantage that can be listed (for the SVT) is that land is permanent and lies outdoors and cannot be hidden. Its value can easily and publicly agreed to and hence a tax on its value cannot be evaded,” says the author of On Development.
“The existing tax regime allows far too much of the unearned increment to remain in private hands at the centre of the economy while bearing down heavily on those entities at the margin of the economy. A change to land value taxation at a rate of say 70 per cent of the annual rental value of the land would turn marginal sites into rent yielding sites. As a result there is no output on these lands.”
In the book, Gittens makes application of the SVT to areas of the economy such as the health and education sectors, that the SVT will assist in the mitigation of crime through the creation of more jobs and the enhancement of social development, on the use of technology, improvements in the Judicial and Prison systems, sport and culture.
In relation to the historically highest foreign exchange-earning sector, oil and gas, Gittens notes the boom and bust cycle in international prices for the commodities exported to earn foreign exchange for the economy. He examines the various taxes now employed in the industry concluding that “many of these taxes relate to taxes on labour, capital and goods and services produced. Would it not be more progressive to set taxes based on the value of the site or exploration block?”
His conclusion on the energy sector is that the SVT will induce companies to carry exploration and production activities: “oil revenues would be greatly enhanced and be more predictive because of the greater production and revenue amounts established,” Gittens claims.
The shortcoming of the book and generally the SVT is the absence of examples of the SVT being successfully implemented. However, though not identified in the book, the SVT has been applied in Denmark, parts of Asia and Australia, Mexico and at the state level in the USA.
On Development is an easy read without too much of the jargon of the economists; it’s available on Amazon.com. At a time when there is search for the most equitable taxation system and taxes which generate economic development, the ideas in the book are worth exploration.
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