Faculty Author Type

Current Faculty [Wei Cui]

Published In

Tax Notes

Document Type

News Article

Publication Date



VAT; consumption tax; imputed consumption; housing


The “pre-collection” of tax on imputed consumption generated by owner-occupied housing plays a crucial role in both consumption tax theory and real-world tax regimes. However, even under current VAT systems with the widest tax bases, the taxation of imputed housing consumption is incomplete because pre-existing housing stock is typically not taxed when the VAT is introduced, and because housing value may appreciate after initial sale. In response, some have recommended taxing residential re-sale to capture previously untaxed consumption value. This paper argues that because the incidence of any properly-designed tax on resale will fall only on economic rent and existing assets, taxing housing resale in itself cannot produce efficiency gains. Moreover, to avoid causing distortions and be consistent with consumption tax theory, a tax on resale must be refined to ensure non-taxation of investment returns other than economic rent. The refinements are alien to normal VAT mechanisms and can no longer be viewed as embodying the “pre-collection” method. Finally, the paper highlights the difference between traditional efficiency concerns about the under-taxation of imputed income/consumption and the equity concerns that likely motivate the proponents of taxing resale. Indeed, in countries where the modern VAT is in place, the aggregate tax burden on housing consumption may be rather high, and under-taxation may not be an issue.

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