Mainland tax authorities have issued revised guidelines requiring high-income earners to declare their earnings from share and property trades, fanning concerns that taxes on gains on the transactions may not be far off.
In an online statement, the State Administration of Taxation said that from the start of next year, people with an annual income of more than 120,000 yuan had to declare their earnings from stock and property investments.
The vague statement left enough room to fuel speculation that the central government may introduce capital gains and property taxes based on the data, a scenario considered highly detrimental to the seemingly runaway sectors.
Zhang Guangtong, a tax professor at the Central University of Finance and Economics, said imposing a capital gains tax was a handy tool for the central government to cool the overheated capital market.
The tax law issued in 1994 states that people have to pay 20 per cent of income from share investments to the government, but the rule was put on hold to boost the stock markets.
'The government has clearly expressed its determination to cool the economy, so reinstating the earnings tax on stock investments can be one of those measures that take effect right away,' Mr Zhang said.
He said taking extra money from high-income market investors could also help the government fulfil its promise to better allocate wealth. 'It's like a sword that can drop any time hanging over your head.'
But Renmin University finance professor Zhao Xijun said that any investment or property taxes would not come for at least two to three years because it was hard to introduce a system that was fair and satisfactory to everyone.
'If you take away part of my earnings when I make money, what will you do when I lose? It's really hard to work out a system that is fair and operational given the extreme volatility in the stock markets,' Mr Zhao said.
He believes the revised tax guidelines are meant only to give the government a better understanding of income structures.
Still, analysts said the announcement was a key factor in the mainland stock markets' slide yesterday, especially in the property sector. Shenzhen Overseas Chinese Town Holding tumbled 8.9 per cent to 60.10 yuan while China Vanke lost 3.35 per cent to 34.30 yuan.
'The revised tax guideline will definitely affect home buying. It shows the government intends to strictly enforce the rules to check rising property prices,' Land Power International chairman Michael Choi Ngai-min said.
But Mr Choi said it was too early to assess the impact considering no details had been released so far.
The revised tax guideline comes after average property prices in 70 cities rose 1.6 per cent last month from September but were up 9.8 per cent from October last year, according to a National Development and Reform Commission survey.