China has been conducting property tax trials in Shanghai and Chongqing since January 2011 in an effort to curb runaway housing prices. However, because the tax rates are so low, about 0.5 to 1.2 percent on average, the taxes were ineffective in controlling local home prices.
Recently, the State Administration of Taxation (SAT) has confirmed a future expansion of the property tax pilot program, which puts property tax reform under the spotlight once again. The government has repeatedly expressed its desire to collect property taxes on a much larger scale for quite some time, yet no substantial move has been made to do so. The pilot program is focused on Chongqing and Shanghai.
Dr. Song Yan, Associate Professor of the Department of City and Regional Planning at the University of North Carolina and Professor Man Yanyun, director of the Peking University-Lincoln Institute Center for Urban Development and Land Policy
Gives their opinion on why no substantial move has been made, and their own opinion on what moves the Chinese government should make.
Both professors agree on certain problems lay reason for the government hasn’t made any substantial moves.
First one is the technical, the design of it. How do they set up a tax rate, how do they determine tax base? And are there some categories you tax higher than others, because you will need to protect the welfare of the low income citizens. A lot of details concerning these needs to be set.
Secondly the visibility, meaning that the government has to clearly show their citizens where and how the money is spent, this would show in the form of public available record sheets, telling how much is spent on what.
Both professors also agree that using property tax should not be the only tool for curbing house prices, though they have different opinions on why that is.
Dr. Song Yan believes that by curbing house prices through property taxes you risk misallocating your economical resources held by the general investors, and since the primarily and almost only type of investment for the private person in China is property investment, it would also lead some of the capital out of China.
She also thinks that the property sellers would forward this tax onto the buyers, and just add the tax to the price. Finally she believes that it could create a whole new segment of corruption in China. The only possible way of implementing sustainable moves in form of property tax, she believes is to have a detailed and transparent data set.
Dr. Man Yanyun thinks that property tax is an excellent tool, but not for the main purpose of curbing house pricing. She believes that the reason for the continuously serge in the house prices is due to missing space in the major cities, this is why she thinks that urbanization of the suburban’s and a functional infrastructure connecting these is a perfect way of getting people out of the major cities, and in that way lower the house pricing. Property taxing is in her opinion an ideal way of financing urbanization and infrastructure.
What is your opinion on this matter?
