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|Title:||Recent development of real estate tax on residential properties in china||Authors:||Pheny, M
Real estate tax
Capital gains tax
Real property gains tax
|Issue Date:||2011||Publisher:||CCH Inc.||Source:||The International tax journal, 2011, v. 37, no. 1, p. 51-58 How to cite?||Journal:||The International tax journal||Abstract:||With rapid recovery from the financial crisis, real estate prices in China have increased dramatically over recent years. Increase in demand for properties in China was originally driven by the desire to improve living standards and later reinforced by the opportunities offered for investment and speculation. Speculators are looking for capital gain and many of them do not lease out the properties on hand. State Grid Corporation of China performed a survey in 660 cities and found that 65.4 million of residential properties had not consumed any electricity in the past six months. Holding the properties will reduce the supply of residential premises in the market and thus, drive up the property prices. In order to avoid a possible bubble in the real estate market, the Chinese government reconsidered the plan discussed in the Third Plenary Session of the 16th Central Committee of Communist Party of China (CPC) held in October 2003 to reform the tax system on properties. The plenum deliberated and approved the document titled, “The decision of the CPC Central Committee on Issues Regarding the Improvement of the Socialist Market Economic System” (the “Document”). The Document specified that reform on taxation system in urban and rural areas should be introduced. When conditions were ready, a unified tax system on immovable properties should be implemented to replace the current fees and charges on real estate transactions. Starting in 2003, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) began the pilot running of the Real Estate Tax in provinces and 32 cities and counties in three batches. The pilot running involved cooperation from different parties in the regulatory bodies to test the feasibility of implementing the tax law, but no tax had been levied. In late April 2010, the press reported that “the State Council approved the introduction of a real estate tax trial program which would be launched in Beijing, Chongqing and Shenzhen. In addition, the trial program would be extended to Shanghai after the end of World Expo at the end of October 2010.
On May 19, 2009, the State Council released the “Circular on Approval and Transmission of the ‘National Development and Reform Commission, Opinion on Intensifying the Reform of the Economic System in 2009’” (the “Circular”). The Circular stated clearly that reform of the real estate tax system had to be intensified. In addition, it delegated MOF, SAT, the National Development and Reform Commission (NDRC) and the Ministry of Housing and Urban-Rural Development to be responsible for studying the introduction of Real Estate Tax.
There were concerns over government policies to control real estate prices. Investors worried about the impact of policies restricting investment in the property sector and the corresponding effect on the banking industry. Critics also said that the introduction of real estate tax would increase the cost of holding properties. The resulting reduction in demand for properties will affect the desire of property developers in building new residential and commercial buildings. This will affect not only the construction sector, but also those industries relating closing to the real estate business, including coal, steel, cement, and furniture. As a result, the demand for loans from financial institutions will decline. This would have significant negative impact on property market and on the investment atmosphere in securities market. Although in response to media enquiries on the press report, the spokesperson of the SAT replied that no information with regard to the approval was received, the share prices had reflected the bad news. Shortly after the press report on the issue of real estate tax, during the week of April 18-22, 2010, the Shanghai Composite Index had its biggest weekly decline in five months. However, commentators argued that the proposed regulation on real estate tax is not an additional levy but a restructuring of current system of taxes and levies. This article studies the implications of real estate tax on different stakeholders including tenants, owners, investors, property developers and local governments.
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