To Tax or Not To Tax:  Amman’s Empty Land Plots

Urban Crossroads #70

 

 

The commotion that recently took place on taxing Amman’s empty land plots came and went too quickly. An announcement made by the mayor of Amman led people to expect that such a tax would be put in place. This caused a strong negative response amongst the city’s residents, as evident in the various articles that appeared in the local press soon after the announcement. The municipality issued a clarification indicating that the tax would only affect a small number of plots in specific parts of the city, and the uproar more or less calmed down.

Amman in fact missed an opportunity to carry out a full public debate on an issue of extreme importance. The concept of taxing empty plots is a common one in various parts of the world. I was coincidentally reminded of this fact in a workshop I attended few years ago at one of the mega-conferences that continuously seem to be taking place in Dubai. The workshop was led by a Swiss gentleman who was explaining a database being developed by a number of Swiss financial institutions to help track the prices of real-estate properties in the country in a more accurate and systematic manner. During the workshop’s discussions, one of the participants - all of whom were from the region - mentioned in passing the common practice in our part of the world of buying an empty plot of land and simply leaving it for some time to appreciate in value before selling it for a profit. This is what we refer to in Arabic as “throwing away” the plot of land (you pick it up again when you want to sell it). The Swiss gentleman was genuinely shocked by the concept and seemed unaware of it. He reacted by saying that one buys land to utilize it, as with building on it or using it for agricultural purposes, but not simply to keep it and then sell it.

I expect that in a country such as Switzerland, the taxes imposed on empty plots are high enough to prevent their use as tools of speculation or even long-term investment. The taxes one has to pay on an empty plot of land from year to year would make it a financial burden rather than a money-making asset.

The rationale behind such taxes is clear. Land is what we live on. We use it for growing agricultural products or for housing the components of the urban fabric such as buildings, gardens, and streets. At times, we also protect is as part of our cultural and natural heritage, as when it is the site of historic buildings or events, or is of natural significance or beauty.

What we should not do with land is to use it to “burry” our money for the purposes of speculation or even long-term investment, as this does not result in any significant sustainable economic activity or growth, or in job creation. Imposing taxes on unused plots of land minimizes this phenomenon and encourages people to put their savings elsewhere, in more productive economic activities.

The economic history of Jordan, however, has been intricately interwoven with both short-term speculation and long-term investment in land. Jordan early on established practices allowing for the efficient surveying and registering of plots of land. Putting whatever savings one may have in land has always been considered a very good and wise investment. For one thing, the various sectors of the Jordanian economy were not viewed as strong enough to entice one to invest in them. Also, in a region with a high level of political instability as the Middle East, land is perceived as a very “safe” form of investment. Stocks in a company, for example, may vanish as a result of political developments, thus wiping one’s savings, but a plot of land will always be there. In addition, as one relative of mine always asserts, in a country such as Jordan that has high population growth, demand for land will always be on the rise, making investment in land an almost sure way of making money. In fact, people who have put their money in land in Jordan over the years have not been disappointed. If one is willing to wait for a bit (and one may not have to wait at all during periods of robust economic growth) one always can sell the land for a much higher price than the one for which it was bought.

Land as a result has emerged as the prime commodity for those hoping for a quick profit, for those who want to achieve financial security in old age, and for those who want to ensure the financial well-being of their offspring. What makes this option even more attractive is that no matter how little savings one may have, there always is a new supply of subdivided plots of land somewhere far away in the Jordanian desert that one can afford to buy.

Still, it is preferable to direct savings and investment into productive and sustainable economic activities that create jobs. Such an allocation of investment in fact has been made on a wide scale in Jordan’s modern history. In the 1950s and 1960s the Jordanian government took the lead in establishing a number of large public shareholding companies, many of which have emerged as primary economic power-horses in the country. These include the Arab Potash Company, the Jordan Phosphates Mining Company, the Jordan Petroleum Refinery, and the Jordan Cement Factories. During the 1990s, the Jordanian private sector established a variety of industrial, financial, and service public shareholding companies, most of which are very active and productive today. In contrast, the boom of the 1970s and early-1980s primarily went into real-estate, and we have relatively little to show for it today. The same scenario seems to be taking place with the ongoing economic boom, which also primarily is directed towards real-estate. Even most of the new public shareholding companies being established today belong to the area of real-estate development.

Considering the long-established importance of land as a means for both short-term speculation and long-term savings in the lives of so many Jordanians, any attempt to place a tax on empty land understandably will be met with tremendous resistance by the population at large, even though such an unproductive recycling of national savings is not in the best interests of the country’s long-term economic health. Still, a tax on empty plots eventually should be put into effect. This process, however, will have to be carried out very carefully, slowly, and gradually. For example, it may be implemented on land plots that the government sells at relatively low-prices for people to build on. It may be implemented in newly zoned areas that are about to be subdivided. In such cases, it would be made clear that one is expected to build on these plots within a set amount of time (such as one to two years). After that, a tax would be imposed on the land, which would make its owner who will not build on it sell it to someone who will.

As such practices become more and more common, people will gradually turn away from treating land as a commodity to trade in, and more as an asset to use. A bigger portion of the country’s savings would be directed towards productive, job creating economic activities rather than being “thrown away” in land in the hope of selling it later at a handsome profit.

Mohammad al-Asad

July 5, 2007

 

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