The Legal Study Of The Land Appreciation Tax System In China

In the new run of the macro-control on real estate industry, tax is used as an important means again and attracts the attention from various parties. In which, The Notification from State Tax Bureau Regarding The Land Appreciation Tax Clearance (guoshuifa (2006) 187 i.e. circular 187), which was released in late 2006, was the most outstanding and controversial one.It requires real estate companies to subject to 30%-60% land appreciation tax from February 1, 2007. Land Appreciation Tax levies the tax on the capital gain on a profit seeking transaction of state owned land use right, construction and other attachments. Which helps to enhance the macro control on real estate development and transaction, restrain the over transaction, protect the interest of the state, standardize the gain distribution system of the land, and increase the financial income. The main principle are:1. Based on the appreciation value; 2. Broad scope; 3. Deduction or valuation method are used; 4. Different tax rate depends on different land appreciation level; 5.Levied by time. It's a popular system in different countries and has it works.From the point of view of economic law, during the years from the promulgation of land appreciation tax temporary regulation in 1993 to circular 187 in 2006, the land appreciation tax system experienced the tight-loose-tight control, and there were lots of legal problems should be taken into consideration.Looking into the land appreciation tax system, the rank of existing regulation is low, and the statutory taxation principle was not applied. There was no clear definition between the power of central and local government. Although The State Council stipulated the land appreciation tax should be cleared, in fact, the tax was waived because it's a local tax. As there is no detail procedure to cope with the land use tax clearance, it was rejected by local tax bureau even if one company wanted to do the clearance. The way of local tax bureau's feed back made it's believed that it's not necessary to pay land appreciation tax any longer. However, the sudden notification regarding the clearance disturb the funding arrangement and affect the profit forecast, the frequent update of the policy harms the on reliance benefit of the tax payer.In a way, some outstanding problems during the past long tem macro control were also reflected on the whirligig of the land appreciation tax system. The macro control should be enhanced to address the outstanding issues in Chinese real estates development. But these measures should be strictly taken according to law. If there is no relevant law specified, at least, it should follow the basic principle of the law. The macro control on real estate is surpassing the function it should have by entering the market self-adjusted field, there is no enough macro control law to follow, meanwhile the existing law are not followed, necessary legal procedure are absent instead of the frequent random control, the conflict between central and local government lead to the resistance from local government, and etc.To resolve the problem of land appreciation tax, we should look into the existing system, such as upgrading the rank of land appreciation taxation, improve the feasibility of the implementation, more communication and information sharing amongst different departments and improve the democracy of tax legislation. Additionally, the legal system of macro control on real estate should be improved, not limited to strictly follow the law in the administration, it should standardize the action of the government, clearly identify the board of the government and the market instead of mixed up, and speed up the legislation on the substantive and procedure law, so as to control the real estate industry following the law and in a good manner.