Rates to be set at a maximum of 3 percent on high-end properties to quell speculation

CHONGQING - The mayor of this southwestern city on Tuesday made his thoughts known on the touchy subject of how to best levy a tax on the more expensive sorts of properties.

Certain properties, Chongqing Mayor Huang Qifan said on Tuesday, will be divided into 10 categories and be subjected to taxation carrying a rate of up to 3 percent.

The tax proposal came a day after Finance Minister Xie Xuren said the central government is pushing forward with national reforms of real estate taxes.

"(Certain) local properties will be placed into 10 categories, which will be assigned different tax rates," China Business News on Wednesday quoted Huang as saying at the municipal finance and taxation work conference.

Huang said that he found on his recent trip to Taiwan that his tax proposals were similar to existing policies in Taipei, where high-end properties are placed in nine categories and subjected to various tax rates.

He said Taipei's tax rate of between 1 percent and 3 percent is "more aggressive than what we will have", indicating the impending rates for Chongqing, a city with 30 million people, will be lower than 3 percent.

With a 3-percent rate, the owner of a Chongqing property worth 20 million yuan ($3 million) would have to pay 600,000 yuan a year to the government.

Strict property taxation is among the measures the Chongqing government proposed in January in a report to local legislators, calling for a better balance to be struck between supply and demand in the property market.

Trying to explain "why everyone is now speculating in the housing market and stock market", Huang said the root cause is the absence of a property tax.

"According to the rules of economics, if property taxes were set at about 3 percent (in Chongqing), no one would speculate on houses," he was quoted as saying.

He said the capital cost of speculating in the housing market, property fees and a 3-percent property tax will bring maintenance costs to about 10 percent of a property's price - a cost high enough to dampen a speculator's prospects of getting a return.

But even though no authority has publicly confirmed that the higher taxes will fall on anything but the more expensive types of properties, local residents have become concerned that the proposed rates will ensnare them.

"Everyone is saying that a house larger than 144 square meters or several houses adding up to 200 sq m will be subjected (to the property tax)," said Zhao Fushui, 29, a doctor in Chongqing. He said he is already "stressed out" about the prospect of having to pay taxes on a second house for his parents.

"If the government can levy a tax on expensive houses, they may gradually levy one on other residences as well," Zhao said. "It's similar to people who are making more money now finding out that they must pay income taxes."

Zhao and other locals told China Daily that they think high tax rates could be applied in a fair manner to properties of the superrich, who "own too many houses and use too few of them".

China Daily

(China Daily 01/27/2011 page4)