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In our hectic scramble to raise money to finance the cost of government, we are inclined to regard taxation solely as a revenue vehicle. So pressing has the need for funds to maintain the day-today operation of our cities become, that it is easy to overlook the role of taxation as a land policy instrument. In most legislative deliberations the prime question is, "How much money will this particular taxation proposal raise?", and not, "What effect will the imposition of this particular tax have on the use of our land resources?"

Also, often overlooked in the imposition of land taxes is the timing difference between government funded programs to achieve land policy goals and private sector actions under a system employing tax incentives. This timing difference can amount to several years. Under one set of circumstances, government must first enact law, second, collect the tax monies under the law, and third, make expenditures for publicly funded projects which will achieve land policy goals.

Under another set of circumstances, government enacts law that encourages the private sector to make land development decisions consistent with the land policy goals of the government. In this case, immediate day-to-day land development decisions on the part of the private sector would be made with the intent of attaining the economic rewards and avoiding the economic penalties for activities consistent with the achievement of the nation's land policy goals. Under these circumstances, the government is not faced with the requirement of collecting a tax and then making appropriations for particular projects that would be consistent with the publicly adopted land policy goals.

Th1s paper will discuss two aspects of a taxation policy adopted by the Republic of China. The first Is "land value taxation" and the second 1s "land value Increment taxation." These two taxes are levied with steeply progressive rates and 1n a selective manner for different property uses to encourage land policy Implementation. At the moment, these are basically urban land taxes and they operate 1n conjunction With an "urban land consolidation" program which will be discussed only briefly 1n this paper. These three revenue and policy measures provide a sound financial structure that 1s showing Taiwan 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 on the "equal right to land" theories enunciated by Henry George. The goal of these two taxes 1s that of recovering for government substantial portions of the land value Increment brought about through public investment.

Achievement of this particular goal is abetted by the land consolidation program employed to finance urban growth and encourage optimum use of land. Under the land consolidation program, a municipality supervises the assembly and readjustment of numerous economically small and irregularly shaped parcels of land into one large development. In one case 3.4 hectares represented more than 300 different ownerships. Typically. In consolidation of this type, the municipality takes about 40% of the land area in exchange for total infrastructure installation, reparceling and development supervision. The remaining 60% of the land is redistributed to the original owners on the basis of the value of their original holdings and in a location as near the original location as possible. Generally, the value of the owners' reduced area immediately following consolidation is about 300% of the value of their original holdings. Within a year or two, values often increase by 1000%. Naturally, the "land value tax" and "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 owners of more than 5000 hectares have requested consolidation of their land In the city of Kaoshlung alone. City officials estimate that in a recent 362 hectares consolidation project, the municipality received 134 hectares worth about $6 billion N.T. ($150,000,000 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.

Let's first look at the "land value" tax which is an annual capital levy that incorporates aspects of a pure property tax and an unrealized capital gains tax. The government has adopted a set of base or starting land values for determining values and value increment, subject to progressive taxation. For purposes of illustration, let's say the starting values were those in existence in 1962. If there was no change in value up to the present time, the "land value" tax rate would be the basic rate of 1.5% of established value. However, 1f 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
Not greater than the starting value	1.5%
Less than 500%	2.0%
Between 500% and 1000%	3.0%
Between 1000% and 1500%	4.0%
Between 1500% and 2000%	5.0%
Between 2000% and 2500%	6.0%
Over 2500%	7.0%

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 pay 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 1.5% of current established value. A 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 deems undesirable. The first of these is the "absentee landowner" tax. An "absentee landowner" is defined as a landowner who together with members of his family does not reside in the municipality or county in which his land is situated. Absentee landowners pay double 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 a value of less than 10% of the land value are considered as vacant land for purposes of this tax. The policy goals of the "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 high progressive rates. The seller is taxed according to the increased value of the land over the original capital value adjusted for changes in the consumer price index.

PERCENTAGE BY WHICH A PART OF THE TOTAL INCREMENT EXCEEDS THE ORIGINAL CAPITAL VALUE	TAX RATE
Less than 100%	20%
Between 100% and 200%	40%
Between 200% and 300%	60%
In excess of 300%	80%

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 20% on gains less than 200% and half the rates shown in the above table for gains in excess of 200%. 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 operations of homes for old people and orphans.

Taiwan, like many other countries, is wrestling with the problem of conversion of agricultural land to other uses at the rural/urban fringe. In these transitional areas there are two levels of land value if one acknowledges "value in use" viz a viz, "value in exchange." On the urban fringe of major cities of Taiwan, the differential is fairly large with sales prices up to 30 or 40 times "value in use" as indicated by the crop response from agricultural land.

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. 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, there are several suggested changes to the existing program. These changes include:

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 upon this legal value.
   
2. Any value increment brought about by factors other than private investment, should be confiscated in the form of "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 nonconforming use of land; that is, any land that was held vacant or not used 1n conformance of 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 of 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 a well conceived and well-integrated tax system employed by the Republic of China.