The taxation of public sourced real estate value increments: A proposal for Turkey

Real estates can gain value over time for various reasons. While some of these increases in value take place within the labour and capital of the property owner, some of them occur as a result of reasons beyond the will of the property owner. Part of the increases in value that occurs beyond the will of the property owner is the result of the decisions and services of the public. It is emphasized in the financial literature that these gains should be shared amongst community members who finance the relevant public investment services. The significant way of sharing this is to create a cycle where the public service is provided again by taxing the value increases. Many countries around the world have regulations to tax real estate increments that occur beyond the will of the property owner. The debate on the taxation of this resource has been accelerated in Turkey as well. For the real estate increments as a result of public decisions and services, this study aims to discuss the feasibility of an arrangement for the taxation, to reveal the socio-economic impact of the regulations and to develop a taxation proposal in Turkey. For this purpose, real estate increment taxes were analysed theoretically and then country practices were mentioned. Then, regulations which can be related to taxation on real estate increment in Turkey were revealed and their effectiveness were discussed. Based on these evaluations socio-economic impact of the real estate increment tax was discussed and then some suggestions have been made for this taxation for Turkey in the last part of the study. As a result of the study, it was stated that real estate increments which arise due to public decisions and services, should be transferred to the public within the scope of both fiscal and nonfiscal purposes of taxation. It was concluded that the regulations such as real estate increment tax in the Turkish tax system are insufficient at the point of taxation of this resource, and the value increases resulting from the decisions and services of the public should be shared among the whole society. In this regard, it was proposed that the public take a share from the real estate increments resulting from zoning decisions, additional zoning permits, changes to the tenure, public infrastructure and public works services and urban transformation.