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Developers hit hard by property taxes

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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.

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