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We may never be able to identify completely all of the reasons behind increases in land values. However, we can generally trace major changes in land values to some action or actions of society as a whole. To the extent that society has invested public funds raised through taxation of the general public and through that investment enhanced the value of private property, the group of taxpayers who financed the improvements may have a legitimate claim on a portion of the increased value arising from them. Many countries around the world have developed fiscal mechanisms to recover what they regard as society's fair share of increased value in privately owned land. This paper will deal with the mechanisms in three different countries: South Korea, Taiwan, and South Africa.

The South Korean device for recapturing a portion of land value increments is called "land readjustment." This is quite similar to the "land consolidation" program employed in Taiwan.

The success of a "land readjustment" program as carried out in Korea depends upon a strong urban authority. Once an area has been selected for urban development, the municipality must have the power to declare it a "land readjustment" project This project then becomes a planned unit development with the proper site plan and appropriate areas set aside for streets, parks, schools, and sites for other necessary public uses. These uses may consume as much as one-third of the total land area within the planned unit development.

Next, it is necessary to estimate the cost of installing the necessary city services. This would involve the site preparation, all the grading and paving of streets, installation of water and sewer lines, provision of electrical service and all of the things that go into the infrastructure to support a major residential and commercial development. At the same time the capital cost estimates are being projected, there is a projection of the probable market value of the improved building sites within the project. Dividing the total capital cost of providing all of the infrastructure, that is all the necessary city services, by the probable total market value of the building sites created, it is possible to predict the percentage of the project area which must be sold to equal the cost of providing all of the necessary services and development. If, for instance, it would take the combined sales price of 10% of the building sites within the project to offset the total development cost, then this would be designated as the "cost equivalent area."

Adding the 10% cost equivalent area to the 33% of the total area required for streets, recreation areas, public buildings, and land for other public purposes, shows that 43% of the total land area is required to support the development. If a private owner within the land readjustment project had 10,000 square meters of raw land previously, he would receive in return 5,700 square meters of improved building sites. If possible the municipality would try to provide these improved sites in locations as near as possible to the original holding. If estimates are accurate, the municipality would in effect pay nothing for land required for public purposes and it would recover the cost of all improvements through the sales of the "cost equivalent area" retained for resale to the private market. Even though the private owner may lose nearly half of the land area of his original holding, the remaining portion could be expected to have a value several times greater than the original raw land parcel. Obviously, a land readjustment project of this type benefits both the municipality and the original land owners.

The municipality recovers its total infrastructure investment through the sales of "cost equivalent land." Generally, the municipality will choose its cost equivalent land parcels scattered throughout the entire project and then determine the pace and structure of the project's development by the timing of its sales within given areas of the project.

The municipality actually has a great deal of flexibility in its land sales. It can do four different things if it wishes:

1. It can actually construct a house on a parcel of land, sell the entire package, and even arrange the financing.
   
2. Since schools are operated somewhat differently in Korea than in much of the western world, the municipality can sell land for schools to persons or agencies who are authorized to build and operate them.
   
3. Land for commercial purposes such as markets can be sold to private individuals who wish to build this kind of facility.
   
4. Improved building sites can be sold to private individuals who wish to construct their own residences and not buy a land and house package.

An interesting feature of the South Korean land adjustment program is the auction method for selling a municipality's share of the improved lots. Advertisements are placed in leading newspapers listing all of the properties currently sale. There is also a map posted in the city hall for a period of at least 20 days prior to the auction. Individuals desiring to bid on a given parcel of land fill out a very simple application which shows the address of the lot concerned and the bidder's name and address, the price which he is offering, and an indication that he has made a deposit equal to 10% of the bid price. Successful bidders enter into a sales agreement with the city. They are allowed a 30% discount in price if they make full payment for the lot within 60 days. If payment is not made within 60 days, interest begins to accrue at a rate of something over 15% per annum. If the full price is not paid within one year, the bid lapses and the deposit must be forfeited. Naturally, unsuccessful bidders will have their lO% deposits refunded immediately.

In Taiwan, the recapturing of society's share of increased land values takes on two dimensions. This country resorts to two different taxing mechanisms. The first is "land value taxation" and the second is "land value increment taxation." Both of these taxes are levied at steeply progressive rates and in a highly selective manner determined by property use. So, in addition to recovering portions of the increased land value, the two taxes operating in tandem encourage development and investment decisions that are consistent with the announced land policy goals of the Republic of China. At the moment, these are basically urban taxes and they do operate in conjunction with the "urban land consolidation" program. As mentioned earlier, the "urban consolidation" program is quite similar to the Korean "land adjustment program." These three revenue and policy measures do provide a sound fiscal structure that is showing many of Taiwan's cities with budget surpluses after funding substantial programs for public benefit.

Both the "land value tax" and the "land value increment tax" are consistent with Dr. Sun's principles which rest upon the "equal right to land" theories enunciated by Henry George about a hundred years ago. The goal of these two taxes is that of recovering for society a substantial portion of increases in land values brought about through public investment.

Achievement of this particular goal is abetted by the "land consolidation program" employed to finance urban growth and to encourage optimum use of land. Under the "land consolidation" program, a municipality will supervise the assembly and development of numerous uneconomically small and irregularly shaped parcels of land into one large development project. This is quite similar to the planned unit development under the "land readjustment" program in South Korea. In once case, 3.4 hectares represented more than 300 different ownerships in a city in the central part of Taiwan. Typically, in consolidation of this type of property, the municipality takes about 40% of the land area in exchange for the total infrastructure installation, reparceling, and development supervision. This would be about the same percentage that was estimated earlier for "land readjustment" programs in South Korea. The remaining 60% of the land is redistributed to the original owners on the basis of the value of their original holdings, and again in a location as near the original land parcel as possible. Generally, the value of owners' reduced area immediately following consolidation is about 300% of the value of the original holdings. Here again, this increase is consistent with that shown for South Korean "land readjustment" projects, and oftentimes within two or three years after the project is underway, values will show value increases of as much as 1000% over that of the original parcel. Naturally, the "land value tax" and the "land value increment tax" will continue to benefit the municipality which has already recouped its entire project cost through the sale of its 40% share of the consolidation area. The program must be judged effective from the point of view of both landowners and municipalities since the owner's of more than 5,000 hectares have requested consolidation of their land in the city of Kaoshiung alone. City officials estimate that in a recent 362 hectare consolidation project, the municipality received 134 hectares worth about 6 billion N.T. ($150 million U.S.) after all public services were in place and all public areas were fully developed.

The "land value increment" tax seeks to tax away the natural increment and thereby stabilize land values and bring about a reasonable level of land prices. In theory, at least, the lower the natural increment, the less the fluctuation in land prices. Stable land prices are regarded as beneficial to the community and steeply progressive "land increment taxes" are seen as an effective tool to achieve this land policy goal.

The "land value tax" is an annual capital levy that incorporates aspects of the pure property tax and the unrealized capital gains tax. The government has adopted a set of base' or starting land values for determining values and value increments subject to progressive taxation. For purposes of illustration, assume that starting values were those in existence in 1962. If there were no change in values up to the present time, the land value tax would be a basic rate of 1-1/2% of established value. However, if there were increases in value since the initial land values were established, the following table of rates would be applied to the excess portions of value.

Portion of Total Land Value in Excess of Initial Value	Tax Rate

In addition to using these progressive annual rates to tax away part of the value increment, the government of Taiwan employs a preferential tax rate structure to encourage certain uses of land. Homeowners now pay at a rate of 0.5% on up to 3 acres of urban land and 7 acres of rural land. Homeowners formerly paid at a rate of 0.7% on areas less than 3 acres (3200 square feet). Land that is earmarked for industrial development is subject to a flat rate of l.5% of current established value. A rate of 1% is levied against land designated for public use but not currently used for public purposes. A flat rate of 1% is imposed on lands lying in agricultural zones or in greenbelt areas included in city planning schemes and a flat rate of 1.5% is imposed on urban land that is currently in agricultural use.

In addition to these preferential rates there are a series of heavier or punitive rates which are levied on land uses or land ownerships which the government of Taiwan deems undesirable. One of these has now been abandoned. The "absentee landowner" tax was carried over from the old rural land reform laws, but this provision was dropped in the most recent revision of Taiwan's tax laws. Previously "absentee landowners" were taxed at twice the regular "land' value tax" rate.

There is also a special "vacant land" tax which is levied at a rate 2 to 5 times the basic rate of 1.5%. "Vacant land" is defined as private urban land which is included in a city planning scheme and is designated for building use but has not been developed within the time period established by the government. Improved parcels on which buildings have value of less than 10% of the land value are considered as vacant land for purposes of this tax. The policy goals of vacant land tax are those of curbing land speculation and encouraging development.

The "land value increment" tax is collected on land sales and it is levied at fairly highly progressive rates. The seller is taxed at a rate based on the amount of increased value over the original capital value. There is an adjustment for changes in the consumer price index. In February of 1977, the old "land value increment" tax rates ranging from 20% to 80% were changed to the structure shown in the following table.

Percentage by Which a Part of the Total Increment Exceeds the Original Capital Value	Tax Rate

The "land value increment" tax also has incorporated some preferential rates. Where urban land used by its owner as a factory site is transferred for the same use, the tax rate will be 1/2 the rate shown in the table. Residential land, when used by its owner, also receives preferential treatment under the "land value increment" tax. In the case of owner-occupied residential land, a flat rate of 10% of the increment is charged for holdings less than 3 acres (3200 square feet) in size.

Substantial portions of the "land value" and "land value increment" taxes are earmarked for special purposes. These include building and operation of elementary schools and construction and operation of homes for old people and orphans. Total collections for F. Y. 1977 from the land taxes (including deeds taxes) is 15.3 billion N.T. dollars (U.S. $405.5 million). After the first step of land value determination net revenue from these three taxes are anticipated to increase by 1.6 billion N.T. dollars (U.S. $42.4 million).

Even with the highly progressive rates for both the "land value" tax and the "land value increment" tax, land prices are moving up quite rapidly in Taiwan. This would indicate that either taxing value increments at the present levels has not been as effective as anticipated in holding down land prices or the program has not been in operation long enough to attain full effectiveness. Whichever may be the case, just before the recent revision there were several other suggested amendments to the existing act. These suggested changes would have provided that:

1. All private land should be valued on the basis of existing use within a set period of time and the land value tax should be levied on this legal value.
   
2. Any value increment brought about by factors other than private investment should be confiscated in the form of a "land value increment" tax at the 100% rate on any increment.
   
3. Any loss to landowners due to control or city planning should be compensated for by the total amount.
   
4. There should be a heavy punitive "vacant land" tax levied and this tax would also apply to any non-conforming use of land; that is, any land that was held vacant or not used in conformance to the existing planning and zoning would bear a heavy penalty in both the "land value" tax and the "land value increment" tax areas.
   
5. The government should have the exclusive right to control the development of land including conversion from existing uses. Anyone who wishes to develop land would need permission from the planning authority and would have to pay a development charge equal to 100% of the land value increment resulting from the change in use.

The Republic of China appears to be quite willing to attack land policy problems through the use of specific tax programs. At least in the fiscal area, this tax structure is a success since it is reported that most major cities in Taiwan are actually running budget surpluses. It is also reported that the "land value increment" tax is generating as much, and in some cases more revenue than the actual "land value" tax. Certainly other countries of the world could learn a great deal about the role of tax policy in shaping land policy by studying the well-conceived and well-integrated tax system employed by the Republic of China.

In the Transvaal of South Africa, the property tax is based upon site valuation or site value rating. However, the city of Johannesburg has embarked on a vigorous program to recover part of the increased value resulting from change in zoning or changes in use. This recovery mechanism is called the "development contribution." The "development contribution" is the amount that a developer must pay upon achieving a higher zoning right. This is calculated on the difference between the market value of the land with the rights and the market value of the land as if the zoning application had been rejected. The amount payable is 1/3 of the difference in the value of the land with the zoning change granted and the value as if the zoning change had been denied. Over the two year period 1974 to 1975, the city valuer's office had done 369 appraisals for such type zoning changes. The actual collections of "development contributions" for the city of Johannesburg for the two year period ran about 8 million rand. This would be about U.S. $9 million. Obviously, a plan of this type would depend on a very strong city-wide planning and zoning ordinance. The Johannesburg officials insist they have such an ordinance and any variance from it is very difficult to achieve. They say it may require 3 to 5 years of rather expensive hearings to achieve a variance from the master plan.

The "development contribution" goes into a fund known as the town planning fund and it is expended for capital works projects. These projects may include street widening, the delivery of water and sewage services, and the improvement of existing city services. The ordinance also allows the money to be used to buy parking grounds and other land required for installation of city facilities for the good of the general public. Expropriation payments for road widening and for capital works are also included in the authorized uses of the fund built up through development contribution.

The rationale behind the contribution is that when an owner develops, whether it be for shops or offices or anything else there is an added financial burden on the local authority which must be met by the local taxpayers or local rate payers. In fairness to them the owner has an obligation to carry part of the financial burden. That burden is the subject of a section of the township's and town planning ordinances. The stated purpose is to ensure that the financial advantages which the owner of the new rights obtained are to some extent shared with the community. It seems to be the government's feeling that it would be morally wrong for a developer to enrich himself at the expense of the rate payers.

However, there is the quid pro quo; that is, an owner's reward. Provided that a developer does not pay an abnormally high price for land with potential only, and that he applies for a reasonable rezoning, thus avoiding the hearings and costly legal battles, there should be an ample reward for him in the end product as well. For instance, there was a special residential stand in a section of Johannesburg that resulted in the following set of figures. In this case, the rezoning was from special residential, that is single residential dwelling, to offices with a higher density of use. The purchase price of a 4000 square meter stand was 160,000 rand. It was estimated that the owner had held the land for two years and the allowance for interest at 11% compounded was 37,136 rand. The rates and taxes over the 2-year period were 7,940 rand, legal fees were 2,000 rand, and the "development contribution" requested of the owner for the upgraded zoning was 56,000 rand. This would have brought his total cost for the land parcel to 263,076 rand. If this were broken down into a price per square meter, the 4000 square meters would have an indicated value of 65.77 rand per square meter. The new market value of this particular stand with the upgraded zoning rights was about 80 rand per square meter. This meant the parcel could be sold with the upgraded zoning for 320,000 rand and the developer would make a profit of 56,924 rand. With only a two year holding period, that would figure out to be about 22% owner's profit without considering for the timing of certain expense items during the 2-year holding period.

In the Transvaal, the concept of the "development contribution" is only about 10 years old. In its initial stages, it was premised on "day before" and "day on" formulae referring to the promulgation date whereupon a valuer was required to assess two values: one on the date before promulgation and the other on the date of promulgation and an amount of 50% of the difference between the two values was payable as a "development contribution." Provision was made for an appeal to the compensation court who were to arbitrate cases of objections. This particular method did not work mainly because of the various legal interpretations of the "day before" and "day on". Some valuers follow the principle of no potential at all on the "day before"; others applied discounted potential and others evolved the hypothetical situation where if one were to phone the provincial authorities responsible on the "day before" to ask "when is this rezoning to be promulgated" and the answer was given "tomorrow" there could be no difference in value: Therefore, no "development contribution".

The second amendment to the section did not improve the situation. The new approach was that the municipal land value appearing in a fixed and binding valuation roll on the date application for the rezoning would be the lower value. The upper value would be the interim land value on the date of promulgation and the amount of the "development contribution" would be 33-1/3 percent.

Undoubtedly each of these three methods of recovering for society part of the increase in land value resulting from both public and private investment reflects the cultural differences present in the three countries. Wisdom would d that any other country deciding to tax land value increases should study the experiences of South Korea, Taiwan and the Transvaal very carefully and adopt only those provisions which have a good chance of acceptance in light of the cultural and economic backgrounds of its people.