Introduction of property tax expected to be accelerated in China
China's Finance Minister Xiao Jie recently wrote an article in the People's Daily, the Communist Party’s mouthpiece, stating that the property tax — which is believed by some analysts to be long-delayed — would be “pushed ahead with”. Although only 90 words in the article address the issue, it fueled widespread speculation that the taxation affecting individual home owners in the country may be rushed into implementation in a few years.

Xiao specified in the article that (local governments) would be fully authorized to roll out suitable plans to levy the tax on basis of properties' appraisal value - in a step-by-step way and after legislation is first put in place. In another part of the article, Xiao also wrote that “all legislative procedures would be completed by 2019”, leading to a misrepresentation by media and opinion leaders on social media that laws about property tax would be all passed before 2019.

Although the newspaper soon came forward to refute the rumors, confirming the 2019 timetable is not for completing legislative procedures of property tax, industry insiders said the imposition of the tax has already been determined with its legislation just around the corner.

This month’s Central Economic Work Conference, at which China's leader map out economic policies for the next year, said in a report that a long-term mechanism for guaranteeing the stable and healthy development of the property market would be built.

Gu Yunchang, an advisor for the Ministry of Housing and Urban-Rural Development pointed out there is a big chance for the property tax to be filed for legislation procedures next year. Some observers believe once long-term mechanism like property tax is put in place, administrative regulations would gradually be phased out.

Establishing the registration system of real estate properties nationwide and setting up standards for appraising the value of the properties would be two prerequisites for its introduction. An industry insider who is familiar with the situation told the China News Service that by the end of next year, the two tasks would be basically completed.

According to Hu Jinghui, vice president of 5i5j.com, a real estate agency platform, the property tax would be a precondition for short-term regulatory and control measures to retreat from the market. “Despite problems, its introduction would still be accelerated,” he noted.

For a long time, the property tax has remained a contentious issue considering its imposition may affect millions of families who own homes in China. Meanwhile, it's also feared that the tax's introduction may inflict a heavy blow to the country's real estate market. However, at the current stage, most industry observers are more sanguine about its effects on the market based on the tax's pilot run in South China's Shanghai and Chongqing that's lasted for years since 2011.

It was reported previously by local Chinese media that the tax is levied merely on those with unreasonable number of houses in the two pilot cities while common home owners would not be included in the ambit of charge. It's analyzed that the imposition would effectively crack down on the speculation in the market and contain the runaway home prices in China.

“In many other countries, the imposition of the property tax constitutes a primary source of local fiscal revenue. Although it may dampen local home prices, other elements including the supply and demand relationship, land system, speculation and money supply would usually have more decisive influence,” wrote a previous commentary by the China Entrepreneur, a magazine affiliated to the state-run Economic Daily.

Yan Yuejin, director of the E-house China R&D Institute, agreed the property tax would mainly help boost finance and tax revenues of local governments, redistribute social wealth and rein in speculation.

“After it becomes one of the major taxes in China's real estate sector, the (capital inflow) would help solidify public finance and even the housing security in China,” said Yan, adding its implementation would also decrease speculative home-buying in major cities, thus containing the upsurge in prices.

Critics of the tax think differently. Ren Zhiqiang, China’s real estate magnate has openly criticized the proposal several times. In his perspective, its introduction would not contain rising prices because for those with high net worth who tend to do speculative purchase, the charges on tax mean nothing compared to revenues derived from the deals.

Ren is also known to claim publicly that the imposition of the tax equals to “robbery” and he believes it would not get approved by the National People’s Congress, the legislative agency.


Ren Zhiqiang’s concerns are shared by some analysts who predict the levy would firstly affect lower-income groups, especially those who need to rent homes. The tax costs would naturally be transferred to rent, and the money of the rich people would be easily diverted to other areas like the financial market.

“It’s unprecedented to levy property tax on homes owned by individuals when ownership of all land belongs to the state,” Xu Shanda, the former deputy director of the State Taxation Administration, said in a 2016 interview. To him, even if the tax would be introduced in China, its rate and ambit of charge should not be equal to the levels in countries endorsing private ownership of land.   

 


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