China - Property Tax Unlikely This Year

Source : The Business Times, April 23, 2008

Technical, political issues need to be ironed out first, say officials, analysts

(BEIJING) China will not start to levy a general property tax in 2008, because many technical and political issues need to be worked out first, according to officials and analysts.

Talk of the tax, which would replace the existing web of levies and fees related to property and land, has been swirling in the market since 2003.

Renewed rumours about the tax, along with worries about other measures to cap prices, have hit property shares in recent weeks.

Analysts say it could potentially not only streamline the taxation system but also discourage speculation. But it has yet to materialise even as real estate prices have soared in recent years.

'It's an arduous and long-term task to establish a reasonable and standardised property tax system,' Zhou Yin, a deputy division head of the State Administration of Taxation, told a forum in Beijing on Monday.

Others agreed that there was a lot still to do before it would become feasible.

Long Guoqiang, a senior economist who has advised the government on the issue, said tax offices still needed to do a lot work to build databases on the amount of land and number of properties, as well as their changing prices. Intensive training of staff to conduct appraisals is also needed, he said, as are adjustments to the models used to assess the value of property in particular cities.

However, Gary Cornia, a board member of the Lincoln Institute of Land Policy in the US, said Chinese tax officials, in Beijing and nationwide, clearly understand the technical issues involved in administering the property tax. 'The question is: is there the political will to do that, or are the political costs so high that even with the political will, it might not be worth it?' he asked at the forum.

Mr Zhou noted that the property tax reform aimed to give local governments a steady revenue stream so that they could offer better public services, distributing tax income that would otherwise have stayed with the central government.

Jia Kang, a senior economist at a think tank under the Ministry of Finance, told the forum that the tax would serve to stabilise prices, as some buyers would be put off expensive homes given the extra tax they would incur, forcing developers to build more modest apartments.

Average property prices across 70 large and medium-sized cities rose 10.7 per cent from a year earlier in March, slowing from February's 10.9 per cent pace.

'The reform will help with the development of a healthy property market in China and fairer distribution of the national wealth,' said Mr Zhou.

Still, the final launch of such a tax structure will probably not come any time soon, some officials say. 'It's unlikely that China will launch the new tax within five years,' said a tax official in the eastern province of Jiangsu. His province is one of 10 regions that have started to simulate the introduction of the tax on a pilot basis.

The tax administration said in January that it would expand the simulation exercise to three to five more provinces and municipalities this year.

'The property tax reform is a gradual process,' Mr Zhou said. 'We need to address all the problems by expanding and deepening our trial programme.'

An official at the Beijing tax bureau, told Reuters that residential properties would be exempted at first and said authorities had yet to decide on a tax rate.

Mr Long added that even when China started to tax residential buildings, it would need to exclude certain low-income families. - Reuters