• International Journal of Technology (IJTech)
  • Vol 12, No 7 (2021)

Developing Mobile Application for Land Value Capture Scheme to Finance Urban Rail Transit Projects

Developing Mobile Application for Land Value Capture Scheme to Finance Urban Rail Transit Projects

Title: Developing Mobile Application for Land Value Capture Scheme to Finance Urban Rail Transit Projects
Mohammed Ali Berawi, Nyoman Suwartha, Agatha Vania Salim, Gunawan Saroji, Mustika Sari

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Cite this article as:
Berawi, M.A., Suwartha, N., Salim, A.V., Saroji, G., Sari, M., 2021. Developing Mobile Application for Land Value Capture Scheme to Finance Urban Rail Transit Projects. International Journal of Technology. Volume 12(7), pp. 1448-1457

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Mohammed Ali Berawi 1. Department of Civil and Environmental Engineering, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia 2. Center for Sustainable Infrastructure Development, Facu
Nyoman Suwartha Department of Civil and Environmental Engineering, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia
Agatha Vania Salim Center for Sustainable Infrastructure Development, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia
Gunawan Saroji 1. Center for Sustainable Infrastructure Development, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia 2. Department of Civil Engineering, Politeknik Negeri Beng
Mustika Sari Center for Sustainable Infrastructure Development, Faculty of Engineering, Universitas Indonesia, Kampus UI Depok, Depok 16424, Indonesia
Email to Corresponding Author

Abstract
Developing Mobile Application for Land Value Capture Scheme to Finance Urban Rail Transit Projects

Land value capture (LVC) has shown great potential in financing urban rail system infrastructure, such as transit-oriented development (TOD). However, the government of Indonesia has not tapped this potential in order to close its infrastructure financing gap. This study aims to determine the incremental rate captured through a tax-based LVC mechanism and develop a property market-based mobile application to implement the scheme, with six TOD areas in seven stations of the Mass Rapid Transit (MRT) Jakarta Phase I project as the case study. This research used literature and benchmarking studies to collect data, followed by the calculations of the transport premium, total value increment, and value capture rate for the betterment tax implementation to obtain its research objectives. The results showed that a 5.82% value capture rate could recover 53.8% of the government's initial investment for the project. Based on that figure, betterment tax rates of 0.3% and 0.1% are proposed for residential properties within the radius of 100-400 m and 400-700 m from transit stations, respectively. Meanwhile, 2.5% and 2.4% tax rates are proposed for commercial properties within the radius of 0-300 m and 300-600 m, respectively. Furthermore, the activity workflow for a mobile application in which the government can issue tax invoices and taxpayers can make payments is also proposed to facilitate the implementation of LVC as an alternative source to finance TOD projects.

Betterment tax; Land value capture; Mobile application; Transit-oriented development

Introduction

        Cities in some developing countries are experiencing staggering growth driven by rapid urbanization (Kumara and Gopiprasad, 2019). However, cities’ rapid growth is frequently accompanied by negative externalities, such as traffic congestion, pollution, and urban sprawl (Albalate and Fageda, 2019). To tackle those issues, many countries are investing in public transit infrastructure that could be further developed to form a compact, mixed-use, and pedestrian-friendly area organized around a transit station, known as Transit-Oriented Development (TOD). 

Indonesia has started developing its infrastructure in order to stimulate its national economic growth (Latief et al., 2016; Hansen et al., 2018). The prioritized projects outlined  in Indonesia’s National Strategic Projects are urban transit infrastructure, which includes the Mass Rapid Transit (MRT) Jakarta project, Light Rail Transit (LRT) Jabodebek project, and  LRT Palembang project (Maimunah and Kaneko, 2016; Farda and Lubis, 2018; Sulaeman and Haryadi, 2018). However, the Indonesian government experiences a fiscal constraint as there is a 63% infrastructure-funding gap in meeting the total investment required. Therefore, an alternative funding source is needed so that the burden on the general taxations or fare-box revenue would not increase (Gunawan et al., 2020).

Land value capture (LVC) is an effort to monetize infrastructure capital investments to capitalize on land value (Suzuki et al., 2015; Huston and Lahbash, 2018) that has been widely considered one of the financing sources for the investment of infrastructure and urban development. It relies on the principle that all of the benefits from the added value of transit development must contribute to the cost of transit (Roukouni et al., 2018).

Abiad et al. (2019) has reported the difference between the land value uplift in Jakarta capital city areas. Land value uplift in the Dukuh Atas area serviced by the rail transit system reached 38.4% between 2015 and 2018, and the Harmoni area with no rail transit system service only had 14.3%. These figures implied that a transit-serviced area receives a more significant uplift in terms of land value. Moreover, Indonesia's tax-to-GDP ratio of 11.9% in 2018 was still under-collected compared to Malaysia (12.5%), Singapore (13.2%), the Philippines (18.2%), and Thailand (17.5%) (OECD, 2020). Hence, this research focused on tax-based value capture mechanisms for TOD projects in Jakarta as the capital city of Indonesia.

Previous studies regarding LVC mainly focused only on measuring the increase of land value as the impacts of the accessibility benefits gained by landowners and private sectors (Pagliara and Papa, 2011; McIntosh et al., 2014; Zhang and Xu, 2017). Therefore, this research attempts to determine a tax rate aligned with LVC scheme principles and propose a mobile application to implement the scheme to finance the initial investment to develop rail transit infrastructure, with the MRT Jakarta Phase I project as the case study. The findings of this study are expected to contribute insight for discussion among policymakers, practitioners, and researchers regarding LVC as a source of project finance for urban transit development.


Conclusion

The LVC can be used as an alternative source to finance the initial investment of public infrastructure, such as TOD projects. Therefore, this study aimed to determine the tax rate for the betterment tax mechanism aligned with the principles of LVC. This study’s findings showed that, by capturing 5.82% of the projected increment capitalized by the property owners once they sell or lease their properties, the government could recover 53.8% of the investment costs required to develop seven stations of the MRT Jakarta Phase I project. Though the exact taxation rate calculated in this study might only be appropriate for Jakarta, considering that the land value uplift might vary across different locations worldwide, the methodology used in this study could serve as a basis for reinforcing a reasonable tax rate, which the municipal or local government in other cities across the globe could justify.

Furthermore, the proposed mobile application workflows show that the application enables the government to issue a tax bill once they have been notified that the property sale and leasing transactions were carried out. The buyer can pay the tax invoice through the payment gateway provided in the application, thereby supporting the implementation of the LVC mechanism.

This paper encourages future studies to investigate further regarding the implementation and benefits of other LVC mechanisms, such as Tax Increment Financing (TIF), Development Rights Auction, and other institutional schemes specializing in LVC in TOD projects.

Acknowledgement

    This research was funded by the Ministry of Research and Technology, Republic of Indonesia (NKB-034/UN2.RST/HKP.05.00/2021).

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