The Real Estate Tax | Will Adjust Income Distribution and Land Finance

China's property market has ushered in heavy news again. The Standing Committee of the National People's Congress yesterday authorized the State Council to draft a pilot measure for real estate tax, and the governments of the pilot areas will formulate specific rules for a pilot period of 5 years. The decision did not disclose the cities that will implement the pilot, and scholars and internal media pointed out that the pilot is expected to be launched first in cities with good economic conditions and rapid housing prices.

Xinhua News Agency reported that the decision adopted by the Standing Committee of the National People's Congress pointed out that in order to actively and steadily promote the legislation and reform of real estate tax, guide the rational consumption of housing and the conservation and intensive utilization of land resources, and promote the stable and healthy development of the real estate market, the State Council is authorized to carry out pilot work of real estate tax reform in some areas. According to the decision, the real estate tax in the pilot areas is levied on various types of real estate such as residential and non-residential use, excluding rural homesteads owned by law and their upper dwellings. The owner of the land use right and the owner of the house are the taxpayers of the real estate tax.

The State Council formulates specific measures for the pilot real estate tax, and the governments of the pilot areas formulate specific implementation rules. The pilot period is 5 years. In the course of the pilot project, the State Council shall promptly sum up experience, report the situation to the Standing Committee of the National People's Congress half a year before the expiration of the authorization period, and where it is necessary to continue to authorize, it may put forward relevant opinions, which shall be decided by the Standing Committee of the National People's Congress. When the conditions are ripe, the law will be formulated in a timely manner.

After the decision was issued, the relevant responsible persons of the Ministry of Finance and the State Administration of Taxation immediately said that they would draft the real estate tax pilot measures in accordance with the authorization and make preparations for the pilot according to the procedures.

Yi Xianrong, a professor at the School of Economics of Qingdao University, said that the State Council only said that it would pilot it now, but there was no basic framework construction, and it still faced many problems. He believes that the "purpose to be achieved" of the real estate tax, the relevant tax rates and tax exemption conditions, the central government should explain and stipulate clearly, and cannot be carried out by local governments. He said that because the current local economy relies on the development model of real estate, if the central government does not set the tax base, local governments are afraid of triggering the chain effect of house prices, and must go to the lowest to do the tax rate ratio of real estate taxes, "a fair and just real estate tax will definitely involve house price adjustment, house price adjustment, the entire economic development model must be transformed." The decision did not disclose the cities that will implement the pilot, Yi Xianrong said, "the pilot must be a place with good economic conditions."

The Economic Observation Network pointed out that the pilot cities may be based on several considerations, one is the economically developed areas, especially the eastern coastal cities; the second is the cities where house prices have risen rapidly in the past period of time, such as Shenzhen, Hangzhou, Shanghai and other places; the third may take into account the cities with relatively high land transfer income, such as Suzhou, Hangzhou, and Shanghai; the fourth is that there is a better tax base, such as Shanghai and Chongqing, cities that have piloted real estate taxes.

The article continues that the Ministry of Finance, the State Administration of Taxation, the Ministry of Housing and Urban-Rural Development and other competent departments held a real estate tax forum in Beijing in May, and the relevant responsible persons of Shanghai, Chongqing, Shenzhen, Hangzhou, Suzhou and Jinan all attended. At the meeting, the experience of shanghai and Chongqing real estate tax pilots was summarized, and Shenzhen, Hangzhou, Suzhou and Jinan were also consulted on "whether to support the pilot collection of real estate taxes in their cities". Real estate tax covers three major links: development and construction, real estate transaction and holding. The holding link tax in the real estate tax, that is, the real estate tax, is currently only two pilot projects in Shanghai and Chongqing.

The Chinese government has wanted to push ahead with the implementation of the property tax for more than 10 years, but it has reportedly encountered resistance from local governments, including people, who have feared falling property prices or panic sales, and the market has been worried that the tax will affect economic growth. The Wall Street Journal quoted sources familiar with government deliberations on Thursday (21st) as saying that due to concerns about the wider impact, the pilot cities that introduced real estate taxes have been reduced from about 30 originally planned to about 10.

Yi Xianrong, a professor at the School of Economics of Qingdao University and former director of the Financial Development Office of the Chinese Academy of Social Sciences, told Ming Pao, "The real estate tax was said to be done in 2003, when we got a lot of research reports, until now (it has not been officially launched), which shows a lot of resistance." In fact, real estate taxes are a fairly common tax in the world, "even in Zimbabwe, but not in China"; but no one who owns a house is willing to pay taxes, "people with rights hold the most real estate, and they are blocked when discussed".

He pointed out that real estate, as the largest wealth distribution mechanism in China for more than 20 years, accounts for more than 70% of the wealth of Chinese residents at present, "a little personal income must be taxed, and it is quite unfair for such a large amount of (real estate) not to pay taxes." If the government wants to engage in common prosperity, if it does not use real estate tax adjustment, it is basically an empty phrase."

Yi Xianrong added that on the one hand, the real estate tax should be levied to adjust the income distribution relationship, and on the other hand, local governments should not rely on land finance; but in this way, China's land finance must be adjusted, such as the establishment of a national land fund, the government selling land to get money into the fund, through fiscal transfer payments to adjust the local land transfer fee, fair use. "If the tax is properly collected, the impact on the real estate market will be great, and the investment market heat will soon recede." However, after the final transformation is completed, due to the stabilization of expectations and the reduction of uncertainty in all aspects, local governments will be more willing to sell land, real estate developers are willing to boldly develop, and the market supply will become larger and larger.