China is likely to roll out its much-discussed property tax to more cities before the end of this year, which analysts say will help close the wealth gap amid growing calls to achieve “common prosperity” by the central government.
The reform will allow local authorities to levy taxes on private properties, giving them the means to collect money from homeowners that could be invested in improving public services and infrastructure development. China currently doesn’t have a countrywide property tax system for private properties, though an annual taxation scheme has existed in Shanghai and Chongqing for over a decade.
Shi Zhengwen, deputy director of the fiscal and tax law research society under China Law Society, said such a national property tax is “highly likely” and might be piloted by the end of 2021. He told state-run China News Weekly earlier this month that there were “strong signals” from the central government that they’re preparing to roll out the plan.
Such signals have been shown time and again from the highest echelons of the government. Most recently, in August, the Ministry of Finance had hinted at “positively and stably advancing” the property tax reform, while a ministerial-level meeting convened to discuss the issue in May.
Huang Zhonghua, a professor specializing in real estate studies at East China Normal University in Shanghai, said that the central authority’s efforts to promote so-called common prosperity and a new land transfer policy this year would speed up the wider rollout of property tax. Under the goal of common prosperity, the country plans to “adjust” the excessive incomes of the wealthy to combat inequality.
“The tax has the function to reasonably adjust the wealth gap among people,” Huang told Sixth Tone. “The reality is, in many cases, the wealth gap resulted from disparate property ownership is wider rather than gaps in income. So it’s a good approach to work towards common prosperity by imposing property tax.”
Experts like Huang believe that the tax reforms would be beneficial for local governments and provide them with a stable revenue to invest in public infrastructure projects.
“It’s also a means to adjust the local real estate market,” he said, referring to how the tax could deter people from investing in more than one apartment, as has been a growing trend.
Shanghai started collecting property taxes in 2011 from homeowners with second properties at an annual rate of 0.4% and 0.6% of the property price, dependent on the size of their real estate. Meanwhile, Chongqing imposed taxes of 0.5% to 1.2% on villa owners and those with high-end luxury apartments.
Experts say such rates are similar to the United States and the United Kingdom, which collect annual property taxes between 1% and 3% of the total property value. Referring to his own research findings, Huang said higher taxes led many owners to move to smaller and cheaper apartments to help them balance out their expenses.
“Some people believe it’s a waste to pay such a high fee for property tax and live in too big an apartment. So the tax actually can play a role in reasonably adjusting people’s needs for living. Of course, in China (in the pilot cities), such effects are yet to be seen.”
Huang believes that the country’s first-tier cities, which have seen their property prices soar, would likely be among the first places to pilot property tax.
Editor: Bibek Bhandari.
(Header image: People Visual)