BEIJING: China will “prudently advance legislation on real estate tax,” Premier Li Keqiang said on Monday while delivering his annual government work report at the opening of the 2018 two sessions. It is expected that the country will go one step further in rolling out a property tax nationwide, an arrangement that is common in most other countries.
There is already a tax system for activities related to real estate in China, with 10 types of taxes, including tax on the use of arable land, land value-added tax and deed tax. But the structural problem with the tax system is that it doesn’t add much to the costs of holding onto a property.
In light of this, China’s property tax reform is supposed to essentially focus on addressing the structural issue with the existing tax system, by tilting the taxation toward a property tax levy.
In specific terms, this means a combination and modification of the current taxes levied on property development and transactions so as to lower the tax burden on the flow of new homes and second homes. Additionally, strengthened efforts will be required to push for taxes on holding a property, which means an extension of the pilot scheme into the wider region, the broadening of the tax base to include the stock of existing homes, and also the availability of dynamic assessment of property values. The experience of developed economies has shown property taxes in countries such as the US, UK, France and Japan contribute more than 10 percent to government coffers. China also needs to push ahead with a series of institutional reforms. For example, a national registration platform for property has been in place across the country since the end of last year. In the next step, a system for property valuation should be established. Also, reforms should be compatible with each other. For example, property tax reform should be linked with income distribution and individual tax reform to allow taxation to play a role in adjusting income.
