Land value tax
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A Land Value Tax (LVT) is a type of tax that the government charges on the value of land. This tax does not include the value of buildings or other improvements made to the land. So, it does not matter whether there’s a luxury mansion built on the land, or whether it’s empty, the land is only taxed for the value of the land itself and nothing else.
The government assesses the value of the land and sets a percentage rate to charge as the tax. The landowner then pays this tax to the government. The idea behind the land value tax is that it’s fairer to tax land than it is to tax other things like income produced from work. This is because the value of land often increases when there are developments nearby. When other people work to improve the area, like open up shops, cafes, libraries and malls near a piece of land, that piece of land will rise in value, enriching the owner, even though the owner did not actively work to help improve anything themselves. So, by taxing the land value, it’s not only the owner who benefits from the increase of land price, but also the community of the area.
A land value tax is simple to calculate and collect. This makes it easier for the government to get the money they need. And because land is a fixed asset that the landowners cannot move or hide, taxing the land is a reliable source of income. Additionally, this tax creates incentives for landowners to make good use of their land, which can lead to overall community growth and improvement.
A land value tax also helps to reduce speculative holding of land. Speculation involves buying land with the hope that its value will increase over time, allowing the owner to sell it for a profit. This practice can lead to land being held without being used, which can stifle development and inflate property prices. By imposing a tax on the land value itself, LVT discourages this behavior and promotes active and purposeful land use.