Business / Industries

VAT reform small impact on demand of properties

By Zheng Yangpeng ( Updated: 2016-04-14 16:09

VAT reform small impact on demand of properties

A shopping plaza in Fuzhou, Fujian province, Dec 31, 2015. [Photo/IC]

The value-added tax reform (VAT) would not push a boom in demand for commercial properties, according to officials, tax experts, and industry insiders.

The reform to replace business tax with VAT in service sectors will expand to four sectors: construction, real estate, finances, and consumer services. The reform is set to begin May 1, and is expected to cut 500 billion yuan in taxes for enterprises.

The reform will allow, for the first time, the implication of VAT incurred by all the enterprises on newly acquired immovable properties that would essentially be creditable. This has brought up speculation that enterprises would be incentivized to buy properties, especially commercial properties, as credit to lower tax burdens. Greater demand for properties would buoy up the market.

When asked about the issue, vice-Finance minister Shi Yaobin said on Tuesday that he did not believed this would be the case.

"Companies' primary focus is profits. If an investment does not align with the company's business, I don't think they'll buy properties simply for the purpose of tax credit."

Other experts shared similar views. Alan Wu, national indirect tax leader for PwC China, said the purchase of real estate requires a large sum of investment, which far exceeds the benefits in the new VAT credit.

"Not many companies who are not real estate investment-focused have a large enough cash flow to buy properties. Many firms also have a habit of leasing instead of buying properties," said Wu.

CBRE, a real estate advisory firm, said in a report that while the new rule might strengthen the need for commercial and industrial properties for enterprises' self-use, firms should be aware that the purchase may incur other costs; such as corporate income tax, asset amortization, and other fees.

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