CHINA'S Land Appreciation Tax (LAT) is bad enough but, when it is combined with the recently announced profits tax, developers can be forgiven if they decide to pack up their tents and invest in any place other than China. With a few strokes of the pen, the central government has determined that only a developer with a masochistic streak would bother to commit his money to China projects. As envisioned, the LAT taxes the developer on the appreciating value of his property. For argument's sake, let's assume that a developer buys a property for $1 million. He then proceeds to construct a building and his land is determined to have increased in value to $3 million. The LAT levies a sliding tax on the developer, ranging from 30 to 60 per cent, depending on the percentage of appreciation. If the property has increased in value by 50 per cent, the developer is assessed with a LAT of 30 per cent on $2 million. But woe betide the developer who is unlucky enough to see his property increase in value by more than 300 per cent. He would pay the maximum 60 per cent on the appreciated value. Add the 33 per cent profits tax and you can see why developers might be skittish about investing in China. To complicate matters, developers had been left in the dark about the details of the new tax, said Stewart Cheng, director of Hip Hing Construction Co Ltd, a subsidiary of the New World Group, and the company charged with the construction of the Shanghai Plaza project. Mr Cheng said provincial governments were trying to find ways of encouraging developers despite the imposition of the LAT by the central government. ''Many will try to find ways to lower it,'' he said. ''They are trying to find ways to give a favourable tax rate to the developers.'' He said it was conceivable that developers could deduct the inflation rate from the appreciated value before the tax was applied. The government in Beijing is apparently being inundated with complaints from the developer and finance lobby telling it the LAT is too high. Mr Cheng said the LAT was intended to curb land speculators. But it severely hampered developers wanting to contribute to the growth of China. He said the tax was a great disincentive and the government should levy the tax as capital gains when the finished building was sold. The government should allow for a special class of developer/builder who could be exempt from the tax, he said. But he admitted it would be an administrative nightmare monitoring whether developers were dabbling in speculation or actually carrying out projects. ''The Chinese government should be encouraging foreign people to come in,'' he said. Similar rates of taxation on developers had stifled development in other Asian countries, he said.
