Expert: Property tax necessary in China
05/04/2010 source: People’s Daily
In light of sustained high housing prices and rumors that property taxes may soon appear in major cities such as Beijing, Shanghai, Shenzhen and Chongqing, the topic of property taxes has once again attracted unprecedented attention. Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance said that it is very necessary to levy property taxes during an interview with People’s Daily.
Jia said collecting property taxes can bring local governments a major, stable and growing source of tax revenues, which will sustain the long-term transformation of local governments’ functions and behaviors and help to complete the comprehensive fiscal, tax and administrative reforms.
If property taxes are levied on real estate owners, it can lead to rational behaviors from both housing supply and demand by posing a tax constraint, Jia said.
“It is worth placing particular attention to the positive effects of collecting property taxes in China where urbanization has just begun. Land resources are exceptionally scarce and fluctuations in the housing market will pose a significant impact on the economy,” Jia added.
He believes that collecting property taxes can have three positive effects. First, it can increase the proportion of demand for small and medium-sized houses, benefiting the intensive use of land, the sound development of urbanization and the transformation of economic development. Second, it can help reduce the vacancy rate of existing housing and enhance the allocation efficiency of social property resources. Third, it can help restrain property investments and speculations and benefit the long-term, sound development of the real estate industry.
The property tax will objectively increase the costs to high-income people who have bought several houses or even luxury houses, and the tax levied can be used to improve the living standards of low-income people. This reallocation of resources is of great urgency and practical significance to rationalize China’s income distribution system.
Some people may wonder whether the property tax is necessary since the government has already levied a land-transfer tax. Jia explained that developers pay land-transfer taxes for the rights to use the land, while property tax is levied on the homeowners during their tenure of the houses. Therefore, the two taxes do not interfere with each other and there are no insurmountable “legal barriers” or “repeated charges.”
Jia concluded that market economy countries have many years of experience in levying real estate taxes, and China should draw on their rich experience based on current national conditions to achieve better development.
