China's Real Estate Tax Reform
China announced over the weekend that it will launch a pilot reform of real estate tax in some regions, a five-year pilot reform.
The real estate tax is clearly targeted at the middle-class affluent class with high incomes and many properties. This helps low incomes family through taxation and adjusts wealth distribution.
Real estate tax is a local tax. It is estimated that the pilot program will be introduced during the year and may be formally piloted next year in 2022. The pilot cities are most likely to be the developed areas in the central and eastern regions where housing prices have increased, including Beijing, Shenzhen, Guangzhou, Hangzhou and other places.
The real estate tax levied in the pilot area is for residential and non-residential real estate, excluding legally owned rural homesteads, farmhouse and their residences.
What is the impact on housing prices and the market? In fact, under China's many stringent regulatory measures to slow down property speculating and implement the "three red lines" for real estate development companies, China's housing prices are already chilling, especially for leading real estate companies that are in deep trouble-- Evergrande is still pending, and the Chinese real estate market is entering the winter.
China’s latest September price index for newly-built commercial housing in 70 large and medium-sized cities rose 3.8% year-on-year, lower than the previous month’s 4.2%. For the first time in this month, it was 0.2% last month.
Experts in finance and taxation pointed out that real estate tax is a small tax. In general, people only have one or two houses, which is nothing compared to real estate prices. The real estate tax rate is usually only about 1%. The impact on the real estate market should be limited.
Take the pilot real estate taxes in Shanghai and Chongqing as examples. Shanghai levies taxes on new purchases, while Chongqing levies taxes on villas and single-family houses. They are intended to curb property speculators such as the middle and high-income groups, they have little impact on ordinary people. In the current environment, no one wants to use a tax reform to cause a big disturbance, nevertheless, the real estate tax trial is an inevitable trend of taxation statutory. It should be noted that real estate tax is only a tool. If this tool is used and adjusted regularly according to the circumstance, it will definitely be very effective. Thus far, it is still difficult to evaluate the impact when the tax rate and tax base are not clear.