While the central government is yet to roll out its long-awaited property tax, the city governments of Shanghai and Shenzhen have surprised the market by announcing a method of collecting land-use taxes in their jurisdictions.
'The new method is likely to be similar to the property tax due to be announced by Beijing,' said Clement Luk-shing, director and assistant general manager at Centaline (China) Property Consultant's Shanghai office.
Mr Luk said that the moves by the Shanghai and Shenzhen governments had broadened the tax collection base by extending it from being levied only when a property sale took place, to an annual tax on all owners not occupying their property for their own use.
The land-use tax will range from 1.5 yuan to 30 yuan per square metre each year depending on the size and location of the property, according to the taxation bureaus of the two cities. Land not designated for commercial use would be exempt from the new tax for the time being, the tax bureaus said, and individuals were also exempt from the tax on their residences for own use.
The reformed land-use tax will replace the current levy of land-use fees, according to Zhang Jiashou, vice-director general of the Shenzhen taxation bureau.
The tax has existed on paper since 1998 but until now has never been enforced. Instead, land-use fees, which are imposed at lower rates and are less complicated in execution, have been collected in the past decade.
But because land has become scarcer, the tax had to be imposed to improve the efficiency of overall land utilisation, Mr Zhang said.
Mr Luk said the direct impact of the tax on land holding costs was likely to be minimal but it might have a psychological impact on the market rather than a materially adverse effect since it signalled a run-up or test before the imposition of a centralised property tax that could be more complicated.