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China introduced property tax trials in Shanghai and Chongqing in 2011/XINHUA

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China mulling further property tax reform

China introduced property tax trials in Shanghai and Chongqing in 2011/XINHUA

BEIJING, Mar 8 – China is mulling further property tax reforms and property tax trial expansions in order to consolidate its efforts in real estate market regulation, the country’s top financial official said on Tuesday.

The reform will be promoted “actively yet steadily,” and property tax trials should be expanded to other cities in the nation “on a proper scale,” Finance Minister Xie Xuren said at a press conference on the sidelines of the annual parliamentary session.

China introduced property tax trials in the cities of Shanghai and Chongqing at the beginning of last year as part of the efforts to curb runaway home prices and contain asset bubbles.

The Ministry of Finance, together with other departments, is working with the municipal governments of Shanghai and Chongqing to collect information from the year-long trial for future expansions.

The promotion of property tax reforms can help restrain irrational home purchase demand and improve income distribution, and the tax trials have been proceeding “smoothly and steadily,” said Xie.

In a government work report delivered at the opening meeting of the parliamentary session Monday, Premier Wen Jiabao vowed to accelerate the development of an urban housing information system and reform the real estate tax system to promote the “long-term, steady, and sound growth of the real estate market.”

“Government regulation through administrative measures is never a permanent solution,” said Chen Tianhui, an official from central China and deputy to the National People’s Congress, the top legislature.

“Expanding the property tax scheme nationwide is just a matter of timing,” said Chen.

China has imposed a raft of measures since 2010 to cool the runaway property market, including requiring higher down payments, higher loan rates and a ban on third-home purchases, as well as promoting the construction of housing for low-income residents.

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As a result, new home prices in the 70 major Chinese cities monitored by the National Bureau of Statistics all ceased to rise in January.

Tax trials in Shanghai and Chongqing have proven effective, according to Liu Kegu, a member of the Committee for Economic Affairs of the National Committee of the Chinese People’s Political Consultative Conference, China’s top political advisory body.

“The introduction of property tax is of great significance to the effective and proper use of land and the improvement of taxation system in the two cities,” said Liu, who has researched the case.

But Liu also noted that the expansion of the property tax scheme will require a transparent social information system, which is currently far from perfect in China, including an urban housing information system and an evaluation system for property prices.

China’s housing authorities have promised to complete the construction of its personal housing information system and share housing information for 40 major cities online by the end of June this year.

The Ministry of Housing and Urban-Rural Development said at the beginning of this year that the system is expected to cover all major cities in 2013.

Moreover, the property tax is not likely to create a burden for common Chinese citizens, Liu said.

Based on the information system, not everyone will be required to pay property tax, as it will not be levied on properties that meet basic criteria, he said.

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