China puts property tax on hold

The expansion of the pilot property tax programme on the mainland has been deferred, the official China Securities Journal reported yesterday.

The journal quoted unnamed official sources as saying that a proposal to expand the tax scheme was put on hold as its implementation required overcoming too many technical problems such as reforms of land and taxation systems.

Only property sales in Shanghai and Chongqing currently attract property taxes introduced by their municipal governments in 2011 under the direction of the central government, in a bid to curb the rise in property prices in the cities.

Mainland media had earlier reported that similar measures were to be introduced in other major cities later this year, and the government would also consider further measures to keep demand and price growth under control.

Market rumours said the plans were scrapped because the new central government leadership team took a different view on property tax, and premier-in-waiting Li Keqiang was worried that the introduction of a property tax would hit his urbanisation plans.

Alan Chiang Sheung-lai, head of residential property on the mainland for property consultancy DTZ, said the government should not have deferred plans to expand the property tax scheme if it wanted to quicken the pace of urbanisation.

"If property prices become too high, this would affect the progress of urbanisation. The government should proceed with expanding property taxes to curb property price growth in order to facilitate urbanisa- tion, instead of putting the expansion of the tax on hold," he said.

Veteran China-watcher Johnny Lau Yui-siu said he believed the decision to put the expansion of the tax on hold was due to technical challenges of implementing it across the mainland, rather than as a result of a political power struggle in Beijing. But local governments, which depended on property sales for much of their revenues would also object to introduction of the tax, he added.

"About 40 per cent of the annual income of local governments comes from property-related business. This will be reduced if the central government orders them to impose a property tax," Lau said.

Chiang said that decisions to suspend the expansion of the tax might have been taken because so far it had not had a major impact on the property market.

"The tax rates in Shanghai and Chongqing are too low," he said. "Also, new housing supply rose significantly in 2012 and will rise again in 2013. I think the government would like to see the impact of these increases before introducing a property tax across the nation."