Construction workers erect a modular building at Shijianzhuang, Hebei Province, on June 20, 2015. (Photo : China News Service)
China’s top legislature is now reportedly drafting the long-awaited property tax law, but analysts on Wednesday cast doubt that it would be implemented anytime soon.
The Standing Committee of the 12th National People's Congress (NPC) has included property tax law in its latest legislative plan to be unveiled this week, according to the Xinhua News Agency.
Property tax reform is widely seen as the key to stabilizing the country's real-estate market, which has been under pressure since the past year.
In a meeting with the NPC Standing Committee in late June, Finance Minister Lou Jiwei said that property tax legislation and relevant reforms would be fast-tracked this year.
"Being included in the national legislative plan means that drafting of the property tax law has begun, but it will take at least a year before the new law is implemented," Ye Qing, a public finance professor at the Zhongnan University of Economics and Law in Hubei, said in an interview with the Global Times on Wednesday.
One major task for the new law is to simplify the country's highly complicated taxation system, said Ye.
Although China does not currently have a property tax law, real-estate firms have to deal with several types of taxes, including tax on urban land usage, operating tax, business income tax, and stamp duty. Secondhand housing transactions also require paying value-added tax and individual income tax, which are often shouldered by buyers.
According to the Finance Ministry, real estate plays a key role in China's fiscal revenue. In 2014, the sector contributed an estimated 1.65 trillion yuan ($265.7 billion) to the country's total tax income of 11.9 trillion yuan.
Ye also noted that the absence of a unified property tax law has to some extent resulted in speculative home buying and the practice boosting of home prices.
"If the property tax can be imposed, there will probably be more houses sold in the market and the price may drop," said Ye, adding that it could lead to a recovery in the real-estate market.
The average home price in 100 major Chinese cities is 10,685 yuan per square meter as of July 2015, a drop of 1.38 percent year-on-year, according to data from the China Real Estate Academy. While 17 of those cities saw an increase in home prices year-on-year, 83 cities saw a decline in prices.
Li Zhanjun, research director at Shanghai's E-House China R&D Institute, is not as optimistic as Ye.
Cutting taxes for home buyers and introducing property taxes on home owners will be significant in terms of optimizing China's property tax system, but it is unlikely to be effective in controlling home prices, Li told the Global Times on Wednesday.
According to Li, it will not be easy for authorities to collect property taxes without supporting laws or regulations.
"Residents will be unwilling to pay the property tax, as they won't understand the reason for it. In China, people are only the owners of the houses, and not of the land on which they are built, which is owned by the country. The property tax should be imposed on the basis of who owns the land," he said.
China experimented with property tax legislation in Shanghai and Chongqing, but home prices in the two cities continue to rise. In July, the average home price in Shanghai skyrocketed by 50.99 percent from the past year to 24,941 per square meter.
Both Ye and Li said that China's cities will have to map their own distinct regulations and mechanisms to collect property taxes to comply with the new law, so it may take some time before it will be implemented.
China reportedly plans to launch a unified and transparent nationwide property registration scheme in 2016, which Ye said would be important for the introduction of the property tax.
