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China May Broaden Property Tax Base as its Effects Limited

04-05 11:47 Caijing
The current scheme of property tax has not included stockpiles of houses, or second-hand homes, which could have limited the role of the tax, and led analysts and researchers to anticipate a broader tax base

China’s pilot property tax program has been on trial for more than a year in the megacities of Chongqing and Shanghai, with the tax to be expanded in provinces of Hunan, Hubei, as well as cities of Guangzhou and Shenzhen.

Authorities “will sum up the experiences of Shanghai and Chongqing and draft a proposal to introduce the tax in other places,” Qi Ji, vice minister of housing and urban-rural development, told an economic forum last month. But he added that it remained unclear when the trial property tax will be extended and which cities will be included in the scheme.

While home purchasing restrictions and tighter housing loans have been working the same way in 2011, it is hard to evaluate the effect of the property tax. Experts believe the piloting programs have only limited influence over housing sales or prices, and even a look at revenue they have created will find it meager compared with total tax revenues in the two cities.

So how might the piloting program change? “The future property tax in piloting cities will not be built up simply in the mould of that in Shanghai and Chongqing, and there will be detailed design combined with local practices,” Jia Tang, head of the Research Institute for Fiscal Science at the Ministry of Finance.

“But in the process to expand the property tax, some basic issues will remain unchanged, such as the fact that such a tax will certainly involve consumptive homes,” added Jia.

Limited Effects

The taxing of the property in Shanghai follows new house transactions, which means no new purchasing, no property tax, even for multi-home owners.

“So technically, the piloting property tax may have played a role in dampening speculation and investments,” said Chen Yanbin, a chief researcher with China Index Academy (Shanghai), “however, restrictions of home purchases –which started in 2010 and tightened in 2011—have weakened the role at some degree.”

Many academics and politicians have been looking to the property tax to gradually replace the revenue from land sales—a major resource for local government revenue that should be largely blamed for stubbornly high prices in the past years.

That could hardly become a reality, however, if we take a look at the amount of revenue from property tax in the past year, which stood at less than 300 million yuan in Shanghai, according to Haitong Securities analyst Hou Lingzhong.

That compares with 342 billion yuan in total government revenue or 151 billion yuan from land sales in the city.

Tax base to be broadened

The current scheme of property tax has not included stockpiles of houses, or second-hand homes, which could have significantly limited the role of the tax, and led analysts and researchers to anticipate a broader tax base.

Guangzhou, the forefront of reform and opening-up, has launched a taxing system for stockpile of houses, replacing the previous way to entrust real estate registration department.

The new system may well be used for the forthcoming property tax in the southern city, according to Liao Junping, chief of the city’s real estate agency’s association.

It will become trendy to levy property taxes on stockpile of houses, and houses with limited property rights (Houses with limited property rights are homes built on collectively owned rural land but sold to buyers who are not part of the collective land ownerships) as the pilot program extends to first and second-tiers cities nationwide, said Huatai United Securities’ industry analyst Guo Chunyan.

Full story in Chinese: http://estate.caijing.com.cn/2012-04-05/111801629.html

(Chinese by Bao Jiji, Hu Junying from Capital Week; translated and edited by Yan)

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