China's property tax reform speeds up

 

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China is accelerating the drafting of a property registration regulation. 

That's according to a statement of the country's Ministry of Land and Resources. 

Observers say, this is the latest action taken by the central government to reform China's property tax system. And that...............................................................................................................................
could further push the country to set up a comprehensive fiscal and tax system.

The property tax reform is also expected to curb China's asset bubble risks and help local governments reduce their reliance on land sales income. 

This could help the nation stabilize the real estate market and its overall economic growth. 

In this report, we look at the status quo of China's property tax reform, as well as how implementation of the tax could change people's lives...

The Chinese Ministry of Land and Resources said the work of drafting a property registration regulation is going smoothly, but stopping short of saying when it will be done.

Analysts consider the regulation as one of the very first steps to curb speculation and graft in China's real estate market. 

Gao Fengqin, professor with Shangdong University of Finance and Economics (SUFE) says existing registration systems haven't been linked up, making it hard to know the overall situation.

SOUNDBITE(CHINESE): GAO FENGQIN, Professor, SUFE 

"We haven't put the property ownership on record. That's why we need a real estate registration system. This is the only way leading to ownership affirmation and on to a better system." 

Earlier last month, Finance Minister Lou Jiwei said major reform tasks concerning the fiscal and tax system will be completed by 2016, before a modern fiscal system will be built by 2020.

Property tax is expected to be a priority for reform. 

SOUNDBITE(CHINESE): GAO FENGQIN, Professor, SUFE  女

"How do we deepen the fiscal and tax system reforms? First of all, the government should gradually raise the proportion of direct tax. And property tax is part of the direct tax."

Yuan Yihong, a financial commentator says that property tax is very likely to become a main taxation for local government. 

SOUNDBITE(CHINESE): YUAN YIHONG, Financial commentator 男

"In some foreign countries, property is taxed at local levels, like district or country level. Property tax is made up of two or three major rates, which, in my opinion, should be those on real estate and consumption.  And the real estate tax should most likely to be the main one. If so, it would definitely become a very important part of fiscal and tax reform."

Yuan points out property tax concerns every Chinese family.

SOUNDBITE(CHINESE): YUAN YIHONG, Financial commentator

"This taxation targets realty, surely a concern to everyone. But this doesn't mean every one will be taxed. Actually, I'am sure most families will be entitled to tax exemption of a large extent."

But for individuals, property tax regulation means it'costly to own many houses at the same time.

SOUNDBITE(CHINESE): YUAN YIHONG, Financial commentator

"The market environment will have big impact on the real estate market.For a family with many houses, it would be rational and economical to dispose of surplus property when taxation is in place."

Another question, how big will be the property taxation system's influence on market in the long run?

SOUNDBITE(CHINESE): YUAN YIHONG, Financial commentator

"In the short term, housing prices' would respond to the system somehow, but surely not in a big way after one or two years of adaptation. Because in the long run, with fast process of urbanization in China, there will still be a demanding real estate market."

The property tax is being piloted in the cities of Shanghai and Chongqing. 

A trial tax was imposed in 2011 on owners of spacious, expensive and multiple homes there.

Home prices in the two cities, particularly Shanghai, however, have kept rising -- as if nothing happened.

Experts say that was mainly contributed by the limited number of homeowners it affects and the low tax rates of 0.6 percent in Shanghai and 1.2 percent in Chongqing.

SOUNDBITE(CHINESE): YUAN YIHONG, Financial commentator

"In the two experimental sites, the influence and effects of property tax are limited. I think that's mainly because it's a new taxation, local governments are very cautious about the measures. Its scope is small, tax threshold is low, and so is the tax rate."

But Gao says it's unlikely to see taxation instantly dragging down the housing prices. And China could better start with a simple tax system with low rates. 

SOUNDBITE(CHINESE): GAO FENGQIN, Professor, SUFE 

"In my opinion, the current technical conditions of tax collection and management would only allow a relatively simply system. For example, let citizens evaluate the system, and then introduce a low tax for a gradual acceptance. Then we can examine the effects after a period of time, and make adjustments to cope with changes in economy, society, and the real estate market."

Finance Minister Lou Jiwei also said that Beijing will accelerate legislation of a property tax.

Li Tiegang, deputy director of Department of Economics in Shangdong University, says that drafting the law will facilitate taxation. 

SOUNDBITE(CHINESE): LI TIEGANG, Shandong University

"The levying scope of property tax in pilot cities is relatively small. The legislation being drafted will cover a larger scope."

Also, experts say that the law could reduce local governments' dependence on land sales revenue and dented people's enthusiasm for property investments. 

SOUNDBITE(CHINESE): GAO FENGQIN, Professor, SUFE 

"To developers, once the law was set up, their cost of buying land would be brought down. And according to the law, regulators could clearly define responsibilities between central and local governments. This will decrease local governments' economic reliance on land sales revenue and increase their dependence on property tax revenue. In the meantime, for consumers, taxation will help undermine their investment preference in real estate."

But before levying property tax, some legal problems need to be solved first. 

SOUNDBITE(CHINESE): LI TIEGANG, Shandong University 

"First, house and land, which one should you tax? House is worthless but land is valuable. However, land doesn't belong to the house owner, it's owned by the state. There are other issues, like what properties should be taxed, and what shouldn't be? Also, how much is the rate and what's the criteria? We still need to explore the ways to consummate the existing legal system."

The widespread idea among economists and analysts is that drafting the legislation of property taxation could be a strong push to China's drive towards a healthy fiscal and tax system.