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Tax debate takes on new sense of urgency

By Zheng Yangpeng | China Daily | Updated: 2013-10-08 07:31

However, analysts cautioned that policymakers should be very careful when setting exemptions from property taxes and establishing rate levels, to avoid hurting the middle class and arousing public hostility.

Reasonable exemptions should be provided so that ordinary middle-class households would not be taxed.

If the tax is collected on a market-price basis, it has to ensure that urban dwellers who only own one house don't pay too much tax, even if their unit's market value is very high.

Experts said if the government is sincere about curbing home prices, many steps could be taken instead of just rushing to impose a property tax.

"The way to contain home prices is simple: target fundamentals in supply and demand," said He Tian, head of research at the China Index Academy. "Two ways have proven to be really effective in curbing prices: land supply and credit policy."

Mortgage policies have proved to be quite effective. Demand can be properly reflected when first-time homebuyers get a discounted mortgage rate while second and third house purchases are subject to a much higher down payment and mortgage rate.

In terms of land supply, economists and real estate developers have for years urged the government to scale up supply, with little effect. The central government has also ordered local governments to increase land supply, but that rarely happens.

In 2012, of all the land supply approved by the government, only 24.8 percent was allocated to residential development while 41 percent went to industrial uses.

The inconvenient truth behind this is that offering massive amounts of cheap land to industrial companies, which amounts to a subsidy, can boost local GDP and fiscal revenue.

So it comes down to the taxation issue, again. Unless local governments can develop a fiscal system that is detached from land sale, it's hard to foresee a real stabilization of urban housing prices.

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