Economic Observer Online
December 04, 2010
Translated by Tang Xiangyang
Original Article: [Chinese]

A reporter with the Economic Observer has learned from an anonymous source that the central government will begin piloting the property tax at the beginning of next year.

Currently, the Ministry of Finance and the State Administration of Taxation is revising the Temporary Regulations on Property Tax to include a tax on qualified property used for personal residence.

According to reports, it has not been decided whether this new policy will cover both property already under ownership and new property. Previously, it was widely believed that the policy would only target new property. While the value of a property under ownership is greatly different from its original value, the value of new property remains almost unchanged. That's why in the property tax pilot cities, tax is only levied on new homes.

However, according to a reliable source, the new policy will cover both property already under ownership and new property; it is just a matter of time.

The property tax is designed to be one of the major tax items of local governments at city and county levels.

There is still controversy regarding how to impose the property tax. Should the tax be imposed starting at a fixed surface area size of a family's property, or should a property be taxed according to its average area per capita. Some analysts say that if the tax is based on the former, it may cause the divorce rate to increase.

Currently, the property tax will be based on a property's average area per capita.

It has been reported that both Chongqing and Shanghai will pilot the policy, though they will issue different pilot projects. Chongqing's property tax will be mainly focused on high-end housing and villas while covering both property already under ownership and new homes, Shanghai will target non-high end property and the tax will be based on a property's average area per capita.

The tax currently being designed is a tax with progressive rates which indicates a higher tax will be imposed on high value property and property with a high average area per capita.

The property tax is believed to be an effective tool to rein in property market speculation and is expected to stabilize housing prices. However no one is sure it will function as predicted.

This article was edited by Rose Scobie

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