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Mémoire
Bachelor thesis

Towards a removal of the rental value coupled with the abrogation of parallel tax deductions : what is at stake ?

    2019

141

Mémoire de bachelor: Haute école de gestion de Genève, 2019

Suisse
fiscalité
valeur locative
English No one can question the critical role that the real estate market represents for its economy, either by its size or its particularities. In Switzerland, the current tax system requires all property owners to pay a tax on the rental value, a fictitious taxable income that is calculated according to the potential income that the landlord could have generated if he rented his property to a third party. However, in order to compensate this tax burden, the tax authorities allow, in parallel, the fiscal deduction of certain housingrelated expenses. These include the costs related to the mortgage interests, housing maintenance, environmentally-related renovations and those inherent to refurbishment of historic buildings. In force for decades, these specificities inherent to the Swiss tax legislation have become deeply rooted in customs, which means that a whole range of socio-economic actors have become involved over the years. Indeed, whether it is the Government through tax revenues, the construction sector which indirectly benefits from the tax advantage induced by the carrying out of maintenance works or the banking system which likes to do business through its mortgage financing activities, all these sectors benefit from it whether in one way or another. However, this current tax system may soon belong to the past. Indeed, the debate about the very existence of rental value has come back to the forefront of the political scene. In February 2017, the Committee on the Economy and Royalties submitted an initiative to the State Council aimed at abolishing the rental value for owners of principal residences while at the same time withdrawing any compensatory tax benefits linked to property fiscal deductions. Although the existence of rental value is currently intended to promote an equitable fiscal system between tenants and landlords, it turns out that this tax has become a very serious burden, and not only for property owners. Whether it aims to reduce the tax bill of the latter, undermined by an environment of historically low mortgage rates or to narrow down the indebtedness level of Swiss households fuelled by the current legislation and raising fears of the worst, there is no doubt about the legitimacy of the debate. Furthermore, given the variety and economic prominence of stakeholders involved, it is therefore more than likely that this tax reform would inevitably entail consequences, if it were to come into being. In this sense, the objective of this study consists in analysing the inherent magnitude and the potential consequences that would result for the involved socio-economic actors. To achieve this, the conclusions of this thesis are based on analytical research including press articles, reports and official secondary data as well as qualitative interviews. After analysis, results indicate that the main beneficiaries of the reform would be homeowners as a whole, depending on their mortgage interest rates and the characteristics inherent to their properties. Among the winners, we would also find Switzerland and its economy which could gain in stability. In the event of a reduction of the household’s indebtedness ratio deriving from the fiscal reform, the country could benefit from a reduction in systemic risk, although the criteria for access to mortgage financing imposed by banks are already considerably restrictive and thought to mitigate this aspect. On the side of the disadvantaged, we obviously find the State, which could face significant tax losses, although the bill aims to advocate a tax-neutral reform. That said, it does not change the fact that the government may have to compensate this potential loss of revenues and the study shows that alternatives are already being considered. On the other hand, it would appear that banks may also have something to lose. Although a slowdown in mortgage activity is not expected to be timely as of today (due to the current interest rate environment), the analysis of various expert’s opinions show that it is highly probable that this fiscal reform will lead to a change in homeowners' behaviour towards their mortgage debt. Finally, it would seem that the construction sector may also have to confront some restructuring in the coming years, not to mention the housing market, that might also have to face some demand and price variations. One thing is certain, this reform and its potential implementation will not leave anyone indifferent.
Language
  • English
Classification
Economics
Notes
  • Haute école de gestion Genève
  • International Business Management
  • hesso:hegge
License
License undefined
Identifiers
  • RERO DOC 327902
Persistent URL
https://sonar.ch/hesso/documents/314878
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