Shanghai, Chongqing tax plan to be 'gradually' rolled out elsewhere

A senior research official attached to the Ministry of Finance has said that an expansion of a trial property tax on second homes, first launched in January 2011 in Shanghai and Chongqing, is "probable" this year to shore up the finances of cash-strapped local authorities and curb property prices.

Recent rises in China's housing prices have fueled calls for an expansion of the tax, which has been limited to the two cities until now.

Speaking at an entrepreneurial conference in Beijing, just days after new efforts to curb property prices were announced by the government, Jia Kang - a director of the research institute of fiscal science which is affiliated to the finance ministry - said the tax expansion would not be aggressive but more regions will be included in a pilot program "gradually".

Jia, also a member of the Chinese People's Political Consultative Conference National Committee, did not disclose which areas will be included in the tax policy expansion, but added that "to introduce a property tax in cities like Beijing will be much more complicated, as there are too much resistance".

His comments come after another round of price tightening measures announced on Friday, targeted at property transactions, including individuals selling properties having to pay a 20 percent tax on sale profits, as well as raised down payment requirements and interest rates on second home mortgages.

The Shanghai property tax model covers only buyers of second homes, while the Chongqing program levies it on both new and existing high-end houses.

"Chongqing's assessment on existing properties was largely due to its very limited amount of high-end properties, but such policies in first-tier cities like Shanghai will have a much larger tax base as well as bigger impact," said Jia.

He said further property taxes could play an important part in improving the current financial strains on local governments, which are seeing sharp declines in fiscal revenue due to less land sales and lower GDP growth.

"To develop more local tax streams for local governments will be a very important task this year, including property tax and resource tax," he said.

However, some said they doubted the effectiveness of wider property tax policies in lowering housing prices.

Mei Xingbao, a former president of China Orient Asset Management Corp, who is also a member of CPPCC, said: "The introduction of a property tax will lead to a rise in transaction costs, but it is unrealistic to expect them to bring down housing prices immediately."

In 2012, Shanghai and Chongqing both saw monthly rises in housing prices, even with the trial property tax programs in place.

Mei agreed that a property tax is good at optimizing income distribution and building a stable fiscal income source for local governments.

"The foundation of any successful expansion of a property tax would be to establish a sound housing information system as the basis of levying the tax," he added.

Jia said there aren't any technical difficulties in establishing such a system.

"The main obstacles are the vested interest of various departments, which tend to keep information to themselves," he added.

weitian@chinadaily.com.cn

(China Daily 03/06/2013 page16)