China's third plenum

Leaders remain undecided on property tax

Pilot schemes launched in 2011 in Shanghai and Chongqing are unlikely to be extended to other cities for time being, reform planner says

PUBLISHED : Friday, 15 November, 2013, 3:50am
UPDATED : Friday, 15 November, 2013, 4:00am

The nation's top leaders had not reached a consensus on expanding pilot trials of property taxes in the near future, despite assertions made at the third plenum that fiscal and tax reforms would be accelerated, according to a senior researcher who has long been involved in the nation's reform planning.

The communiqué issued on Tuesday after the plenary meeting attended by nearly 400 party elites did not explain how the government would manage the property market, sparking speculation that a hotly debated property tax may not be imminent.

Liu Shangxi, vice-director of the finance ministry's Institute of Fiscal Science, said yesterday that the government would expand the scope of consumption taxes as well as add ones on resources and environmental use.

"But there's no clear conclusion on the property tax right now," Liu said.

"Predicting when a property tax will be levied is like fortune-telling right now.

"The government will not roll out a property tax simply aimed at dampening property prices."

Government agencies would probably release a full copy of detailed reform plans on Tuesday, Minsheng Securities' chief researcher Guan Qingyou said.

China began levying a property tax in Shanghai and Chongqing in 2011, partly to rein in rampant speculation that was fuelling the risk of asset bubbles.

Liu said that expanding the property tax should be considered in the context of all local taxation, such as taxes related to land.

The government's next step might be to levy taxes on buying or owning two or more properties, especially luxury houses, Liu said. The tax would only be expanded nationwide when per capita income had risen greatly from current levels, he added.

Given the levels of pollution across the country, resource taxes were likely to be levied on more commodity types such as coal, metals and non-metals.

In future, it was expected that they will also apply non-mineral resources, and environmental taxes would replace the current system of fees, he said.

Beijing has also pledged to reduce local governments' burden of raising investments to fund infrastructure projects.

China launched its last round of fiscal reforms in 1994, when local governments were banned from running fiscal deficits.

Provincial and city authorities were largely able to sidestep that stipulation by setting up local financing platforms to borrow money from banks to finance their investment drives, creating mountains of debt.

Bank of America Merrill Lynch said in a research note on October 8 that the ratio of local government debt to gross domestic product has risen steadily from 13.5 per cent at the end of 2002 to almost 32 per cent by the middle of this year.

However, local governments' responsibility to allocate funds for various projects had been too high and could hardly be matched by the low revenue streams of the governments, a situation that party leaders pledged to change.

Liu said the central government should shoulder more responsibility for financing public services and infrastructure, such as the construction and maintenance of national highways.