Study On Taxing Private Residential Property In China

In January,2011, Shanghai and Chongqing announced the launch of property taxreform, taxing property owner-occupiers for the first time. Issued by the State Council in1986, the Provisional Regulations of the real estate tax of the People’s Republic of Chinaare still in use today. This states that owner-occupiers are not required to pay propertytax. Since the reform and opening-up, the increasing disposable income of residents andthe constant reforming of housing policies have allowed real estate to become an importantpart of people’s wealth. However, apart from the rising rigid demand of owning properties,the real estate market in China is filled with excessive speculative demands. Those with ahigh disposable income are able to own many properties with very low cost due to the zerotax burden that comes with the ownership of properties. This, combined with rising housevalues ensures a great return on their investments. As a consequence, the gap between richand poor continues to grow, posing a negative influence on building a harmonious society.The pilot property tax in Shanghai and Chongqing could be a big step towards reformingthe property tax in China. Unfortunately, over three years later, the pilot scheme hasyielded meager resultsThrough the comparison and analysis of both pilot policies (Shanghai and Chongqing),it was found they have deviated from the nature of property tax. This differentiates themfrom international practice. Only properties purchased after the initiation of the new policyare subject to tax. What’s more, the tax base comes from the transaction price rather thanthe valuation. This system of taxing has made people question if it was only designed tosuppress the soaring real estate prices and lacks a long term vision.The third plenary session of the eighteenth central committee has made the decision toquicken the real estate tax legislation and promote reform. This indicates thatowner-occupiers’ properties would be taxed nationwide. Nevertheless, the promotion ofthis does not equate to simply revising and copying the experiences of the two pilot cities.It requires a better understanding of the nature of property tax. Only based on that, can a modern property tax system be built. What’s more, the priority targets of promoting a realproperty tax is to fine-tune the tax system and to provide the local government a stablerevenue source. Meanwhile, it can also strengthen the role of property tax in adjusting thesecondary distribution of income.As the saying goes,“the stones of those hills may be used to polish gems”，Theexperiences of other countries and regions can be referred to during the establishment of amodernized real estate tax system.Apart from the theoretical analysis, practical analysis and experience reference, I alsodrew up a basic conception of the property tax. There is no doubt the reform of theproperty tax is still an uphill battle, but in fully understanding the character of it, hitting thegoals of the reform and overcoming the obstruction of interest groups, we can modernizeour property tax system and create something relevant to our time.