Nation set to start preparing unified levy
China reportedly has started drafting the long-awaited property tax law, but analysts said on Wednesday that it could take a long time before it is implemented.
The Standing Committee of the 12th National People's Congress (NPC), the country's top legislature, has included the property tax law in its latest legislative plan, which will be unveiled this week, the Xinhua News Agency reported Wednesday.
Property tax reform is widely expected to play a key role in stabilizing the country's real estate market, which has been under pressure since last year.
During a meeting of the Standing Committee of the 12th NPC in late June, Finance Minister Lou Jiwei said that property tax legislation would be fast-tracked, and that reform in the sector would be pushed forward this year.
"Being included in the national legislative plan means that drafting of the property tax law has begun, but it will take at least a year before the new law is implemented," Ye Qing, a public finance professor at Hubei-based Zhongnan University of Economics and Law, told the Global Times Wednesday.
One major task for the new law is to simplify the taxation system, which currently has many complicated aspects set by different layers of local government authorities, due to the lack of a unified property tax law, said Ye.
Although China does not have a property tax law yet, property companies already face several kinds of taxes, including tax on urban land use, operating tax, business income tax, and stamp duty. As for secondhand housing transactions, sellers are supposed to pay taxes such as value-added tax and individual income tax, but instead the taxes are usually paid by buyers.
The Ministry of Finance has said that the real estate industry plays a key role in China's fiscal revenue, and in 2014 the sector contributed about 1.65 trillion yuan ($265.7 billion) in taxes to the country's total tax income of 11.9 trillion yuan, according to media reports.
Ye also noted that the absence of a unified property tax has to some extent led to speculative home buying, as well as boosting home prices.
"If the property tax can be imposed, there will probably be more houses sold in the market and the price may drop," he said, noting that this could lead to a recovery in the real estate market.
The average home price in 100 major cities in China stood at 10,685 yuan per square meter in July 2015, down 1.38 percent year-on-year, according to a report issued by the China Real Estate Academy on Saturday. In July, 17 of the cities saw an increase in home prices year-on-year, while 83 cities saw a decline in prices.
Li Zhanjun, research director at Shanghai-based E-House China R&D Institute, did not completely agree with Ye.
Reducing taxes for home buyers and introducing property taxes on home owners will be significant for the optimization of China's property tax system, but the move is unlikely to be effective in controlling home prices, Li told the Global Times on Wednesday.
It is not easy for the authorities to collect property taxes if there are no supporting laws or regulations, he said. "Residents will be unwilling to pay the property tax, as they won't understand the reason for it. In China, people are only the owners of the houses, and not of the land on which they are built, which is owned by the country. The property tax should be imposed on the basis of who owns the land," Li noted.
China rolled out a property tax trial in 2011 in Shanghai and Chongqing, but home prices in the two cities have kept rising. In July, the average home price in Shanghai surged by 50.99 percent from a year earlier to 24,941 yuan per square meter.
Both Ye and Li said that different cities will have to map out their own regulations and corresponding mechanisms to collect property taxes in accordance with the law, so it may take a long time before implementation of the new law is seen.
China reportedly plans to launch a unified and transparent nationwide property registration scheme in 2016, which Ye said would be important for the introduction of the property tax.