Taxing the Consumption of Owner-Occupied Residential Property

Given that VAT/GST systems are primarily designed for the purchase of goods or services that yield immediate consumption, or consumption over a limited period of time, they do not cope well with goods that are consumed over a long, or indefinite, period. The classic example is a personal residence. While the physical house or apartment may have a limited life and depreciates over time, the market value of immovable property may rise as the property passes from one private owner to another. In this case relying on upfront taxation to tax all future consumption of the good may not yield an optimal or appropriate tax outcome.Currently, there is no mechanism in VAT/GST systems to tax the increased consumption value of owner-occupied residential property. A potential alternative approach would see the purchase of residential property recharacterized as the supply of (residential) services for VAT/GST purposes and private individuals (homeowners) forced to be registered and remit VAT/GST to the tax authorities