October 14th, 2012
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Land Value Tax – adapting to the consequences of India’s free market in land

Leaving aside the question of inefficient tax collection in most states, the problem with property tax is that it leaves people free to benefit enormously from rising value of land, as the land accrues in value and they simply sell it off and make the money with barely any stamp duty.

Land value tax


Anandi Sharan*


At the moment the taxation system in the country is desperately ineffectual and biased towards letting the potentially very large tax payers off the hook whilst taxing employees and corporations and more or less completely exempting land.

Only 3% of adults pay income tax in India. Land, the most valuable commodity in the land is not taxed at all, despite its value increasing in leaps and bounds with every year resulting in enormous windfall profits for various families and distorting policy choices a state may have because of its pathetic tax revenues compared to private land profiteers and land grabbers.

Land value tax (LVT) is different from others forms of taxes, including property tax. Property tax is a tax on property, and is implemented by municipalities and Panchayats on house owners depending on square foot of commercial or domestic property and so on. Such forms of taxes are on the statute books and in the constitution and are being implemented to some extent.

Leaving aside the question of inefficient tax collection in most states, the problem with property tax is that it leaves people free to benefit enormously from rising value of land, as the land accrues in value and they simply sell it off and make the money with barely any stamp duty flowing to the state. Yet, it should be mentioned, stamp duty is the largest single source of revenue to Karnataka for example at the moment. It should thus be of great interest to all states to look at stamp duty again. Land should not only be taxed when it is bought and sold, but also during the time when it is owned, whether occupied or not.

There many reasons for land price rise, the main one of course being influx of foreign money unlinked to productive investments. People make their money any old where in the world (using fossil fuels… but that is an aside…) and then buy land as an investment.

Because the proceeds of land sales are not invested in real production to increase the amount of goods and services and the number of jobs in the economy over all, one of the reasons we see land values rising and inflation rising is because the benefits of rising land values are not percolating into the economy in terms of more productive use of land. Instead land is mainly used for speculation, with most of a corporation’s wealth often coming from its assets in land – and these in turn have often been granted through back-handers and corruption by politicians in league with developers or corporates. Thus land and money circulates amongst these people with land, but workers do not profit as the state has no way of directing the flows of these moneys into productive use, let alone environmentally sustainable uses.

To endow socialist modernity with meaning, anyone or any group or family with some control over land including temporarily abandoned lands owned by absentee landlords, or agricultural land abandoned by the rich and left in a state of neglect without water source, high rise balconies or courtyards in society building complexes, should squat such empty patches and grow vegetables, legumes, dry wheat or SRI paddy, fruit trees and medicinal plants. Struggles over land are the be-all and end-all of struggles. If people have no appetite for abolition of private and state property, then let there be a call for squatting of land until the taxation system is changed and LVT introduced. But the introduction of LVT really is an absoluter must, and all parties should have LVT in their party manifestos.

LVT is a simple, much researched but an obviously hitherto unimplemented system of taxing land at its full market value regardless of what it is being used for. Land value tax (LVT) applies to the value of land regardless of what is on it. So states would have to be heavily involved in its introduction as taxation of agriculture and agricultural land is a state subject. As we have a system of no objection certificates needing to be given by town wards and gram sabhas for development projects even today, these institutions would also be the right third tier state agencies for collecting LVT. If LVT were introduced, they would have plenty of money in their coffers to then, through consensus, spend for their populations, to encourage people to use their land most efficiently. In other words, local populations as planners, including those who want to see implementation of environmental standards, would have money with which to see their plans and regulations implemented.

In a report published by Hanno T.  Beck in 1999 he explains that LVT is “an ecotax because it discourages idle speculation, underuse, waste, and sprawling development of sites…. We cannot point to any particular parcel of land and be certain that it will adjust to the tax by being developed in a more efficient way — but across the entire economy, increasing the cost of site-holding will most definitely reduce idle speculation in the short run and cause less land-intensive sprawl development, more infill and redevelopment of urban areas, and the restoration and rehabilitation of buildings and existing neighborhoods.” http://www.taxpolicy.com/etrbeck.htm

In England recently the Joseph Rowntree Foundation said that LVT might push down land values, so to reduce the opposition by the middle class transitional arrangements could be made. The Guardian article summarises their proposals: “LVT [could be introduced] at a very low level and with plenty of exceptions (for elderly single people living in large properties for instance), with incremental rises over time. Another suggestion is just to tax development land at first. A more embracing LVT could be offset by reductions in income tax and getting rid of stamp duty and capital gains on property, which in turn would encourage more sales. The OECD has argued that a switch from income taxes to wealth taxes would have the benefit of discouraging wealth hoarding in favour of work.” http://www.guardian.co.uk/society/2012/sep/16/land-value-tax-revamp?newsfeed=true

FEASTA also recently published a book on land value tax. http://smarttaxes.org/2012/09/13/launch-of-the-fair-tax-in-buswells-hotel-on-the-18th-september-at-6-00pm/

Most landless labourers who are the majority of all Indians would gain from the introduction of LVT. But speculators who today include anyone with some inherited land, or with access to a job in the global economy where salaries are in the stratosphere, or with both, has benefited hugely from the land price boom of the last 20 years. The LVT will hit them. But so it should. In fact their own children who now are suffering from high land prices would find it easier to afford a home or to buy a patch of agricultural land if LVT were implemented. Thus landless agricultural labourers as well as educated landless youngsters setting off to make their way in the world would benefit from LVT. In fact we would all benefit not only from LVT, but from ecological tax reform as whole, which essentially means implementation of the 73rd Amendment to the Constitution and all its elements that concern decentralisation and local control over land and land planning.

*Anandi Sharan is an educator and campaigner on climate change and political ecology. She lives in Kempapura Road, Hebbal, Bangalore and has 2 children age 22 and 24.



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