An Analysis of Dr. Sun Yat-Sen's Self-Assessment Scheme for Land Taxation
Posted: 26 Aug 2007
Dr. Sun Yat-sen proposed a method of self-assessment of land value in 1905. Under his scheme, each owner submits his own valuation but the state reserves the right to purchase the land at the self-assessed value. Sun claimed that his land policy would deter landowners from under-assessing their property, and the annual tax would discourage them from over-valuation. An interesting aspect of his scheme is that it depends on the voluntary actions and truthful reports of the property owners. This paper analyzes the properties of this type of truth-revelation mechanism. First, we show that Sun's scheme does not induce truth-reporting of land value. Second, we modify Sun's scheme by imposing an additional kind of cost on the landowners in the calculation of their expected profits. Under the modified scheme, government not only purchases the land at the underreported value, but also collects taxes bases on the true land value. Furthermore, the government sets a cutoff point of the land value. If the reported value is above the cutoff point but still underreported, the landowner must pay an additional fine. The level of the cutoff point is a function of the tax rate and the fine is proportional to the amount of tax evasion. Under this scheme, the landowners will always report land value truthfully. In terms of the applicability of the self-assessment scheme, it should not be difficult to imagine the application of a self-assessment scheme to other marketable sources of rent, e.g., mineral rights, brand names, and patents. The tax system could, for example, require that every property owner declare his valuation for taxation at stated intervals, say annually, and must then accept any bona fide offer above his valuation during this period. The incentive to undervalue is to avoid taxation; the prospective penalty is take-over.
Keywords: Sun Yat-Sen, Self-Assessment, Land Policy
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