INTRODUCTION

One of the most complicated problems in designing a VAT base involves the taxation of real (immovable) property. The tax base should consist of the personal consumption element in real property (for residential property, living quarters either owned or leased). In the United States, housing represents over 16 percent of total personal consumption expenditures. The difficulty is to identify the personal consumption element, especially for real property that may be used for business or personal purposes.

There are a number of possible techniques for taxing real property under a VAT. They must consider valuation and other administrative issues in the context of business versus personal, investment versus consumption.

ARRAY OF VAT TREATMENT OF REAL (OR IMMOVABLE) PROPERTY

A variety of approaches to the taxation of real property are available, even if they are based on the principles that a VAT is a tax on personal consumption, and the tax should not be imposed on the same value added to goods or services more than once.

Real property is a long-lived asset, even more so than other consumer durables. Ideally, the current use of consumer durables should be taxed each year. This approach raises significant administrative and practical problems. As a result, most consumer durables are taxed at the time of purchase (based on the consideration paid). This approach reflects a decision to tax the present discounted value of the stream of future personal consumption. The same approach could be used for real property.