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The Manx Nationalist Party - Advocating Republican Independence since 1963


The following submission was made to the Isle of Man Treasury in response to views sought on the taxation of income derived from land and property. November 2005.

The document should be read in conjenction with the Treasury's consultation


 
Mec Vannin has a long standing policy in favour of applying speculation tax to property transactions. This is to both protect the national asset and the people from exploitation by capitalist free-enterprise.

As such, we would support a tax regime that aims to inhibit such exploitation. If the proposed legislation actually targets those who profit from or trade in property sales, it can  only be described as speculation tax. The eagerness of the Treasury to say that this is NOT speculation tax, and in light of the exceptions alluded to, we feel that it is more probable that this legislation will simply end up being a mechanism to raise revenue from normal property transactions while the speculators are allowed to exploit the in-built loop-holes (that result from the fear of the notion of capital gains taxation) to the utmost.

This being the case, any support for the proposals is, at best, highly qualified.

In the following response, extracts from the Treasury's own document are reproduced in Courier Bold Italic while our own comments are in normal Ariel font.

1 INTRODUCTION

For many years concern has been expressed that land is a national asset that should be
protected and should not be exploited for the benefit of a small number of people.

We refer to our original submission of 16th April 2003. This supported the taxation of land transaction particularly with a view to inhibiting speculation., a long-standing policy of the Party.

The buying, selling and development of land and property and the effect that these may have on prices is of genuine concern to the Isle of Man Government. Treasury and the Income Tax Division are also concerned that there should be certainty in respect of the taxability of transactions in land and property.

The ineffectual Speculation Tax of the 1970s was strongly opposed by those within Tynwald who both were and represented property speculators. No time was wasted in scrapping it after less than ten years of operation to encourage activity in the property and development market. In light of the government's own plethora of statements welcoming the "high levels of economic activity" in relation to housing and land prices, the above claim must be treated as completely disingenuous.

Many land transactions result in a capital profit and Treasury has no intention of taxing them. Certain transactions however, are of an income nature and may be escaping tax.

Our own document stated that it was clearly the Treasury's intent to "grab a slice of the action" rather than actually control or inhibit property transaction. The above sentence confirms that this remains the Treasury's intent. Worse, it reveals that there is no genuine intent at inhibiting such transactions and Treasury will obviously benefit, in light of its ill-conceived zero tax proposals, from an increased level in property transaction i.e. the national asset will not, in reality, be protected. We are unable to attach any credibility to the claims that this forms any underlying intention in the proposals.

With the move to a general 0% rate of income tax for companies, non-resident owners could potentially extract profits from land transactions or Manx property rental income without paying Manx income tax. Treasury feels that this is not appropriate and therefore proposes the introduction of a schedular tax system for income1 derived from land and property in the Isle of Man. When using the term ‘schedular’, we mean that the Taxes Acts would define a class of income and how that class of income would be taxed separately from the rules applying to general income.

and in the 2003 consultation it is stated:

D.9 It is not considered appropriate for the Island to contemplate a capital gains tax on property transactions or to re-introduce a land speculation tax because any separate new taxation system would add complexity.

yet

Treasury proposes that the relevant legislation will be presented as a stand-alone Bill incorporating revised clauses that had originally been presented in the first Income Tax (Amendment) Bill 2005. The introduction of this legislation in the House of Keys will come after the new company tax legislation.

It appears that the Treasury is stumbling from position to position, crippled by the conflict between a need to generate revenue on one hand and its own blind adherence to an inflexible economic ideology that treats the concept of capital taxation with a pathological fear.

This, in itself, is the result of an entrenched mind-set that believes that the exploitation of land is beneficial.

We can only reiterate our original proposal which states:

All property transactions should be taxed according to a sliding scale of tax upon the profit from sale less inflation from the period of purchase, less legitimate expenses incurred during its holding and diminished by the period between purchase and sale.

That is not complex, it taxes those who profit from speculative gains most, thus inhibiting the practice in the first place.

Obviously, any instant that results in a negative liability means zero tax in reality

Any sale of property forced by Court Order, compulsory purchase or similar legal compulsion should be exempted from the tax. There should be no question of the government being given incentive to use blunt legal instruments to force revenue earning transactions.

To exempt "primary dwellings" from the tax will do nothing to kerb escalating housing prices and will be exploited by speculators. This market forms the majority of transactions there should be no need for any exemptions should the above principle be followed. Furthermore, given the large number of properties owned by people who claim to be resident for tax purposes but are very clearly not actually resident, it is possible that a huge number of high value properties could be sold and the profit leave the Island.

Furthermore, any potential to exploit bilateral etc. tax-relief agreements by non-resident land-owners should be investigated and, if possible, closed.

The taxation of rental income from property is a completely different issue and, even more obviously than the failure of the proposals to inhibit or even tax the majority of damaging transactions, serves no purpose other than to raise revenue for Treasury. We do not oppose taxing income from rental in principle, but are concerned that since the sole obectives of these proposals is to raise cash for Treasury, the government will be actively discouraged from controlling property rental prices to the ultimate detriment of society.

This consultancy document is underpinned by the concept of land being a precious national asset; the final proposal is in respect of what is essentially the rate of tax applying to income from land and property. Should Treasury decide to introduce a cap on the tax liabilities of individuals, it is proposed that income from land and property received by an individual (including dividend income from companies deriving their income from Manx land and property) should be excluded from the tax cap regime.

Without prejudice to our total opposition to the tax-capping proposals, we support the intent of this paragraph, insofar as it specifically rules out the exploitation of land by tax-dodging immigrants, should the tax-capping actually go ahead.

Methods by which inherited and gifted property exemptions could be exploited must be investigated and addressed. We do not wish to see the situation whereby a person could find themselves in debt through being gifted or left property. At the same time, it would not be difficult to exploit a black economy through the "gifting" of property between individuals and organisations should mechansims not be in place.

The question of land-rezoning must also be addressed. The practice of speculators / developers acquiring land and then pressuring government, through various means ethical or otherwise, to have it rezoned has been identified and confirmed. This enhances the property's value to the speculator and is to the detriment of society. Conversly, we have seen government use its powers to acquire land and then rezone it for its own benefit.

When the value of land is enhanced by government rezoning, the tax should not apply. This removes an incentive by Treasury to encourage revenue by rezoning this precious resource. If, however, the government acquires land and then rezones it, a compensation equivalent to the increase in value should be paid to the original owner or their successors.

Conversly, if a property owner successfully has land rezoned, then the tax should be applied in full at the time when the land is sold i.e. no diminishment should be applied should the property or part of it be subsequently resold.

In summary, we find the document and Treasury's statements confused, contradictory and, in relation to any control of the national asset, totally ineffectual. As such, we can offer it no support unless modified in the manner we suggest.

END

28-10-05


 
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