Explain property tax plan

Domestic media were quick to read a warning into the report that the tax authorities are planning to expand simulated property tax collection from pilot cities to the whole country.

Though it is far from clear when and how such a realty tax will be imposed, some domestic experts have already interpreted the expected move as fresh evidence that the government is tightening control over house prices with taxation.

Tough talk that the Chinese authorities made at the end of last year against excessive rises in housing prices, particularly in certain cities, has considerably boosted public expectations that the government will step in to cool the overheated property market. Since the property tax will generally make it more expensive to own a house, its introduction, in a sense, can be regarded as a measure to discourage the speculative property transactions that have largely fueled property bubbles.

Under the current tax system, property used for commercial purposes is subject to certain taxes, but residential property is exempt. Instead of paying property tax, all property developers are required to pay a lump-sum, up-front land rent payments, for a leasing period up to 70 years, before they are made a big share of the cost for house buyers.

Since it is no longer secret that such land revenues have become the financial lifeline for many local governments, the tax authorities must explain how the new tax will smoothly replace the land conveyance fees without affecting local governments' fiscal conditions.

More importantly, after having paid a huge up-front land rent payment, consumers have the right to know as early as possible on what terms their properties will be taxed.

Simulated property tax collection has been carried out in pilot cities for more than six years. If the tax authorities want to expand it nationwide, they should first come up with a detailed report to inform the public of the progress of, as well as problems with, pilot programs.

Otherwise, uncertainty about the property tax will neither help cool the overheated property market nor facilitate the healthy development of the real estate sector in the long run.

(China Daily 01/06/2010 page8)