Growing Indications That China May Implement a Nationwide Property Tax

According to experts, the levies may provide money for local governments to use to invest in public infrastructure and public services.

China is expected to expand the application of its much-discussed property tax to additional cities before the end of the year, which experts believe would help narrow the wealth gap as the central government pushes for the achievement of “shared prosperity.”

Local governments will be able to impose taxes on private homes as a result of the change, providing them with the tools to collect money from homeowners that can be used to improve public services and infrastructure development. China does not presently have a national property tax system for private properties, despite the fact that yearly property taxation schemes have been in place in Shanghai and Chongqing for more than a decade.

According to Shi Zhengwen, deputy director of the fiscal and tax law study organisation under the China Law Society, a national property tax is “very probable” and may be implemented by the end of 2021. He told the state-run China News Weekly earlier this month that the central government has sent out “strong indications” that they are ready to implement the plan in its current format.

Such signals have been sent from the highest levels of government on a number of occasions in the past. Recent statements by the Minister of Finance have indicated that the property tax reform would be “positively and steadily advanced,” and a ministerial-level conference was called to address the subject in May.

Huang Zhonghua, a professor at East China Normal University in Shanghai who specialises in real estate studies, believes that the central government’s efforts to promote so-called common prosperity, as well as the implementation of a new land transfer policy this year, will expedite the wider implementation of property tax. As part of its commitment to achieving shared prosperity, the nation intends to “adjust” the excessive earnings of the affluent in order to fight income disparity.

“The tax has the purpose of properly adjusting the wealth difference between people,” Huang said in an interview with Sixth Tone Radio. “The fact is that, in many instances, the wealth disparity created by unequal property ownership is greater than the difference in income between the rich and the poor. To strive toward shared wealth by imposing property tax, therefore, is an excellent strategy to take.”

The tax changes, according to experts such as Huang, would be advantageous to local governments since they would give them with a steady source of income with which to engage in public infrastructure projects.

“It’s also a tool for adjusting the local real estate market,” he said, alluding to the possibility that the tax might discourage individuals from purchasing more than one apartment, which has been a rising trend in recent years.

Shanghai began collecting property taxes from residents with second homes in 2011 at a rate ranging between 0.4 percent and 0.6 percent of the property price each year, depending on the size of their property. Chongqing, on the other hand, levied taxes ranging from 0.5 percent to 1.2 percent on villa owners and those who own high-end luxury flats.

According to experts, such rates are comparable to those collected by the United States and the United Kingdom, which collect yearly property taxes ranging between 1 percent and 3 percent of the entire value of the property. According to Huang’s own study results, increased taxes have caused many property owners to downsize to smaller and more affordable flats in order to better balance their expenditures and reduce their debt.

“Some individuals think that paying such a high property tax and living in an overly large apartment is a waste of money. As a result, the tax may really play a part in modifying people’s basic requirements for a reasonable amount of time. Of course, similar impacts have not yet been seen in China (in the trial cities).”

Property taxes, according to Huang, would most likely be implemented in the country’s first-tier cities, which have seen their property values rise as a result of the country’s economic growth.

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