Every year, home owners in Switzerland must add imputed rent to their taxable income, creating an unusual additional tax on home owners introduced during the first world war to fund the war effort. Switzerland’s government has agreed to remove the tax. However, this week, parliament sent the latest plan back to the drawing board, reported 20 Minutes.
Some members of the government are concerned that the current proposal might be overturned by a referendum if passed into law. To avoid this a majority of parliament (125 vs 68) voted to have the plan reviewed and adjusted.
Currently, home owners must pay tax on imputed rent. At the same time they are allowed to deduct mortgage interest and the costs of home maintenance.
A petition 6 years ago brought widespread dislike of imputed rent to the attention of the government. A key argument in favour of removing imputed rent is the incentive it creates to maintain a large mortgage. Those who repay their debt are left with additional taxable income with no interest to offset against it.
The first version of the plan to remove imputed rent involved axing it along with interest and maintenance deductions. However, the Council of States agreed to a version that maintained 70% of the deductions, which a parliamentary commission later recommended increasing to 100%.
A key concern, particularly among members of the Centre Party, is that voters may consider the current plan too generous to home owners and too expensive. Tax losses related to the change are estimated at around CHF 3.8 billion, the majority (65%) of which would come out of cantonal tax receipts. Unsurprisingly, a majority of cantons are against the current version of the plan.
Those in favour of imputed rent argue that removing it disadvantages renters and will cost too much. How much the change will cost is difficult to estimate. For variants of the plan that remove mortgage interest deductions the tax losses are greatest when interest rates are low. However, with rising rates the amount of tax revenue foregone shrinks.