Reviewed by Sep 30, 2020| Updated on
Over a certain period, the government lowers taxes on companies and businesses to promote economic growth in a region or sector. Such a rate cut is called tax abatement. It is a reduction in the amount of taxes an individual or corporation has to pay.
Definitions of a reduction include a tax cut, a penalty cut, or even a refund. If an individual or company overpaid its taxes or receives too high a tax bill, it may ask tax authorities for a reduction.
Property tax is one of the most common forms of tax relief provided to the business for a certain period to extend their current operations within the city.
Abatement is a taxation technique, usually used by different governments, to promote particular practices, such as capital equipment purchases. For example, a tax incentive is a kind of tax abatement.
The first use of abatement was in the real estate sector across different countries. You can purchase a property which already has a discount, or you can purchase an eligible property, make the necessary changes and apply for the discount yourself.
Properties will also stay owner-occupied to continue applying for the tax deduction. So, if the property is sold from one owner-occupant to another, the tax exemption will remain with the house.
Nevertheless, when the property changes hand, the abatement period does not start again. If the seller received seven years of reduced property taxes, the new buyer would receive the remaining three years of a 10-year cut.
Usually, a government offers a tax deduction only when a company or person provides the society with something of high value. For instance, in the USA, a city government may give a business a tax break in return for a city investment, such as a new retail location, factory, or warehouse.
It brings an added benefit of increased employment in the region since a target business can ultimately provide more employment in some conditions. Such businesses may establish a retail store within the local community on receiving a tax discount on property taxes. By adding convenience to the area, it improves public benefit.
A business which profits from a tax reduction may be investing in local infrastructure. To function effectively, a new company would need to increase the number of roadways, water lines, or power lines in the city. While this benefits the firm itself, it also benefits the community where the additional infrastructure is being installed.
They can create development zones if the cities want to build land. These zones offer any housing construction in the region of tax reductions, thereby enabling people to create homes.