China will allow cities to set their own property taxes

Beijing

CHINA will allow cities to set their own property taxes instead of requiring them to conform to one tax regime, said a senior lawmaker, in one of the most detailed official comments on how the long-mooted tax could be implemented.

China's residential property market is deeply segmented and polarised, with prices many times higher in so-called tier-one cities such as Beijing and Shanghai compared with markets in hinterland cities. The huge price variations make it hard to create one tax regime that can apply to all markets.

Allowing local governments to decide their own property tax rates will also minimise their potential impact on housing prices, said Yin Zhongqing, deputy director of the financial and economic affairs committee at the National People's Congress.

China has considered a property tax for more than a decade, with market speculation of its implementation rearing its head every few years. But the idea of a tax has run into resistance, with stakeholders fearing it would erode property values, trigger a sell-off in the market, or cause a correction resulting in systemic risks.

Work on a draft property tax in China is "steadily advancing", senior Chinese parliamentary officials said last week during the country's annual parliament meeting. The comment sparked speculation that Beijing may be looking at submitting a draft tax proposal for review this year, triggering a drop in the share prices of Chinese property developers. Mr Yin gave no indication on when such a tax could be implemented. He also did not say if all cities in China would implement the tax at the same time, or it would be rolled out in certain cities in phases.

The central government will set a few tax rate brackets for local governments to choose from, Mr Yin was quoted as saying by state media, with the tax to be levied at the current prices of the properties. "Property tax is a local tax. . .so when it is introduced, local governments should have a large degree of autonomy regarding to when it is levied and at what rate," he told the 21st Century Business Herald in an interview. Mr Yin stressed that the tax was not aimed at adjusting property prices, and when it would be implemented was key as it "certainly has a considerable impact on the real estate market and people's expectations".

Chinese policymakers have vowed to maintain the stability of the property market and avoid sharp price fluctuations. Mr Yin said that the tax, like income tax, will set a minimum tax-free threshold to protect the interests of average home owners. It should serve the purpose of deterring speculators, prompting them to sell homes that are not occupied instead of holding them in the hope of ever-rising prices. "Whoever has a larger house will pay more taxes, and whoever lives in the major cities, or in central areas in a city will pay more taxes," he said, adding the tax-free threshold could be set at 40 to 60 square metres per person.

Pilot property tax schemes were introduced in cities such as Shanghai and Chongqing a few years ago, but the glacial progress to roll it out nationwide has drawn criticism as home prices continued to rise.

But analysts say Beijing may be accelerating the process now as it just pledged to slash trillions in taxes and fees to spur growth in the economy, and as it enters the third year of its war on property speculation.

Such a tax would boost local governments' coffers as a much-needed new source of revenue.

An official close to the Ministry of Finance said that China will "definitely" introduce the tax within the tenure of the current administration, which began its current five-year term last year. It is unclear whether China would pass the property tax at the full session of parliament, which meets every March, or at one of parliament's standing committee meetings which take place at regular intervals throughout the year. REUTERS