China has decided to pilot testing property tax levies in selected cities during the coming five years, to garner experiences before proceeding with formal legislation.
The Standing Committee of the National People’s Congress (NPC), China’s top legislature, adopted the decision on Saturday to authorize the State Council, the cabinet, to pilot property tax reforms in some regions, according to a report by the Xinhua News Agency.
Industry experts say a trial property tax could be tested by the end of this year in selected first- and second-tier cities that have hot real estate markets, most likely in Guangdong’s Shenzhen, Zhejiang’s Hangzhou, and the southern island province of Hainan.
China’s central government, ever since 2011, has tried out levying the taxes on high-end private residential properties in Shanghai and Chongqing, two mega cities. Since then there has been much discussion of expanding the tests nationwide, though there has been little progress to date, as many local governments are reluctant to push for such a tax out of worries that the property taxation will cause property values to drop, and dampen market demand of land — a crucial source of local governments’ revenues.
The Xinhua reported the latest NPC authorization for the State Council is for the purpose of guiding rational consumption of housing, and economical use of land resources to promote the steady and sound development of the country’s real estate market.
The property tax in the pilot areas will be levied on all types of real estate, including residential and non-residential properties, excluding legally owned rural houses, Xinhua said.
With a trial period of five years, the State Council, the cabinet, will roll out specific measures for the pilot real estate tax, and the governments of the pilot areas will come up with detailed implementation rules, the Xinhua report said.
This new move is of great significance to regulate China’s real estate sector, and is one of the most noteworthy policies in guiding properties reform, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Saturday.
After the pilot reform is carried out, property sector speculation activities will be strictly regulated, Yan added.
There has been much debate about whether China should legislate on levying on private residential properties. Proponents say the tax will prevent housing bubbles from getting perilously larger, while opponents caution a property tax will chill the market and significantly shortcut China’s economic growth.
It appears the authorities intent to launch a pilot run before officially issuing a new law, because properties taxation is always considered an important reform measure.
Jia Kang, chief economist of the Huaxia New Supply Economics Research Institute and an expert on taxation policies, earlier called for pilot testing property levies in Shenzhen and Hainan. Shenzhen city, as the pioneer demonstration zone of reform and opening-up, and Hainan, with the world’s largest free trade port zone, have been given greater autonomy for economic reforms, making them suitable choices for experimenting property taxes.
China needs long-term measures to regulate the real estate market. China’s home prices has been growing at the fastest pace in the first eight months this year after government curbs failed to stem buyer enthusiasm. Home prices in first-tier cities like Beijing, Shanghai and Shenzhen have kept elevating.
According to Chinese economist Ren Zeping, China’s housing market value reached $62.6 trillion in 2020, nearly twice that of the US and six times higher than that of Japan. Last year, housing accounted for 59.1 percent of total household assets in China.
The new tax reform will play an important role in promoting the government’s initiative of promoting common prosperity, adjusting income redistribution and realize social equality, industry experts said.
Global Times
