Legislation on real estate tax once again becomes a highlight on the market.
This issue was proposed by the finance minister Lou Jiwei this time. At the High-level Tax Symposium of the G20 Finance Ministers and Central Bank Governors Meeting held on July 23, Lou said it is regret that reforms on real estate tax and individual income tax have not been introduced, due to weakness in information gathering and hindrance from interested parties. But he indicated that China will “proceed without hesitation on this issue”.
China Business News learnt that draft on real estate tax law currently is still under preparation, and there are many difficulties to be addressed. However, information gathering work on levying real estate tax on natural person has been accelerated. The Ministry of Land and Resources (MLR) has vigorously pushed forward unified registration of real estate. This will provide regulators with better knowledge on the real estate industry and lay a more solid foundation for the launch of real estate law. The State Administration of Taxation (SAT) this year has introduced the Third Phase of the Golden Tax Project in all the provinces nationwide, for the purpose of creating files on every natural person, including personal information on property. This measure has paved the way for real estate tax reform.
Draft expected to unveil in 2017
In contrast with house property tax, which was simply charged on commercial properties in urban areas, the real estate tax will cover all properties, including residential buildings. Therefore, real estate tax becomes a big concern on the market.
At this year’s two sessions, namely National People's Congress (NPC) and Chinese People's Political Consultative Conference (CPPCC), Liu Xiuwen, deputy director of budget working committee of NPC Standing Committee, revealed that the research of real estate tax law was led by budget working commission and the Ministry of Finance (MOF). The real estate tax law was classified in the first-class legislative items in the adjusted legislative plan of the NPC Standing Committee.
The first-class legislative item refers to draft laws with mature conditions and is proposed to be delivered for deliberation during the tenure of the NPC Standing Committee. Priorities are given to such items for legislation. “The real estate law is likely to be improved in 2017 at the soonest, or delivered for deliberation in 2017 if not so fast, and will be approved in the tenure of the next NPC Standing Committee,” said Liu Jianwen, professor from the Law School of Peking University.
On July 2, Hao Ruyu, vice chairman of the NPC Financial and Economic Committee, indicated at the 10th “China Economic Growth and Cycle” forum that the real estate tax law is still under formulation, and there are a lot of difficulties to be tackled.
Information gathering on real estate accelerated
Yao Sheng, former deputy director of NPC Standing Committee budget working commission, told China Business News that taking into account of all aspects of the social economy, it is almost impossible to complete legislation on real estate law this year.
Jia Kang, member of the CPPCC, former head of the Chinese Academy of Fiscal Science of the MOF and head of China Academy of New Supply-side Economics, previously optimistically estimated that according to the schedule of reform, legislation of real estate tax will be submitted to the “two sessions” for discussion in 2017 at the soonest. But he changed his mind at the beginning of the year. He told the media that so far, the introduction of real estate tax was not match with original schedule, and now it depends on when the NPC starts the first review. However, in the current economic climate, this issue has to be delayed.
Jia believes that there are still divergences on real estate tax. One of the reasons for not introducing such tax is the current housing market condition and the main direction of cutting housing inventory. “Once the tax is implemented, the housing market will be impacted.”
De-stocking of housing inventory requires an active market. While the conditions are not mature, to impose real estate tax may reverse the expectation of the market and make it increasingly difficult to reduce housing inventory.
As pointed out by Lou, one of the major problems of legislation of real estate tax is the weakness in information gathering.
The premise for real estate taxation is to collect real estate information of natural persons, for example, the number and value of houses owned by a person nationwide. China now is speeding up the step to collect related information. Ministry of Land and Resources is pushing the uniformed registration for immovable property. It also plans to basically finish the registration and database integration for immovable properties of all levels in 2016, and carry out overall deployments of national immovable properties registration information platform in 2017. The number and structure of house properties owned by everyone will be collected, after networking these data and information domestically.
Additionally, State Administration of Taxation is making every effort to cover all provinces with the third-phased tax project, which features in that all natural persons will have a file with their real estate transaction information recorded, providing basic data for tax system reform including this one for real estate tax.
Details like tax rate and exemption attract much attention
Different from house property tax, the real estate tax will be an entirely new tax system. It will possibly not only apply for taxation on house itself, but also combine the taxations on house and land.
The real estate tax reform aims to integrate the current house property tax and urban land utilization tax, Ni Hongri, researcher at Development Research Center of the State Council, once indicated.
The market keeps a close eye on the scope of house property taxation, taxation basis, tax rate, tax exemption volume & target, and etc.
The existing house property taxation only covers urban areas, not including rural ones. Except two pilot cities Shanghai and Chongqing, the house property tax only applies for operational houses, excluding individual house. In the future, will the real estate tax break through the said restriction, and apply for all house and related inventory?
As a local tax type, the real estate tax will be determined by local government for its application scope, Zhu Weiqun, tax expert and also professor of Shanghai University of Finance and Economics, once told the journalist. The differences are very huge in local areas. Although the real estate tax can be legalized at a national level, the said huge and complicated differences cannot be ignored. It is proper that each local government independently determines the taxation scope based on fair and standardized decision making and its actual condition, instead of uniformed rule nationwide.
As a property tax, the real estate tax should carry out taxation based on value of house property, Zhu indicated. In terms of taxation fairness, the taxation basis in the future will base on market price. Currently, the taxation basis of real estate tax in Shanghai is in line with 70 percent of transaction price in the housing market.
How to determine the tax rate of real estate tax is also a key issue attracting much attention. In Shanghai, different tax rates from 0.4 to 0.6 percent are implemented, and 0.5 to 1.2 percent for Chongqing.
Many experts now believed that exemption scope should be designed after real estate taxation, and only the parts excessive to basic demands of a person’s living could be taxed.
However, there are two different views in the market to this respect. Some believe that exemption scope should base on living area per capita, for example, living area of 60 square meters is not taxed in Shanghai according to the pilot real estate tax. But others think that the exemption amount should base on house value, as values of the same living area may differ a lot in different areas, and exemption based on living area per capita will benefit high price house owners, but not favorable for low-price ones.
Translated by Adam Zhang and Jelly Yi
Latest comments