Tax pro­posal

China Daily (Hong Kong) - - FRONT PAGE - BAI JING­MING The au­thor is deputy di­rec­tor of the Re­search In­sti­tute for Fis­cal Sci­ence, af­fil­i­ated to the Min­istry of Fi­nance.

Prop­erty tax should be care­fully planned and im­ple­mented to bet­ter pro­tect peo­ple’s in­ter­ests and nar­row the widen­ing so­cial gap.

Prop­erty tax has be­come a hot topic of dis­cus­sion in the Chi­nese me­dia af­ter fig­ur­ing in the De­ci­sions on Ma­jor Is­sues Con­cern­ing Com­pre­hen­sively Deep­en­ing Re­forms, is­sued by the Third Ple­nary Ses­sion of the 18th Com­mu­nist Party of China Cen­tral Com­mit­tee as a blue­print for re­forms.

China has im­ple­mented many tax re­forms in the past three decades but none has at­tracted as much pub­lic at­ten­tion as prop­erty tax. The re­sponse it has gen­er­ated is sur­pris­ing es­pe­cially be­cause prop­erty tax in sam­ple cities ac­count for only a small per­cent­age of the to­tal tax; it is es­ti­mated to reach 152.5 bil­lion yuan ($25.11 bil­lion) this year, just about 5 per­cent of the value-added tax. Why this big in­ter­est in a “small tax”?

His­tory tells us that prop­erty tax has al­ways sparked dis­putes. When the United King­dom tried to col­lect com­mu­nity charge poll tax in the 1980s, it met with fierce re­sis­tance from res­i­dents, and was ul­ti­mately forced to re­place it by coun­cil tax in 1993.

China used to col­lect tax on realty in the 1950s. But af­ter the 1986 tax re­forms, prop­erty tax was ap­pli­ca­ble only to real es­tate used for busi­ness pur­pose in ur­ban ar­eas. The point of pub­lic de­bate now is whether such a tax should be ex­tended to res­i­den­tial build­ings as well, some­thing that Shang­hai and Chongqing mu­nic­i­pal­i­ties did in 2011.

The rea­son why peo­ple are con­cerned about prop­erty tax lies pri­mar­ily with the high and ris­ing costs of own­ing a house. For a long time, many ur­ban res­i­dents had only land-use rights on the house they lived in be­cause of the col­lec­tive land own­er­ship sys­tem. The change came with “mar­ke­ti­za­tion” re­form in 2000, un­der which a ma­jor­ity of res­i­den­tial houses be­came the prop­erty of res­i­dents through com­mer­cial trade or other re­for­ma­tory means.

By 2012, the to­tal area of res­i­den­tial houses in China had reached 19.83 bil­lion square me­ters, or 14.5 sq m per per­son; the fig­ure could be 30 sq m per per­son if the pre­vi­ously built houses are in­cluded. The 2012 Re­search Re­port of China House­hold Fi­nance Se­cu­rity, jointly re­leased by the Peo­ple’s Bank of China and South­west­ern Univer­sity of Fi­nance and Eco­nom­ics, says 89.68 per­cent of Chi­nese fam­i­lies have their own houses, a much higher per­cent­age than in Western coun­tries.

For or­di­nary wage-earn­ing peo­ple or fam­i­lies, a house is of­ten the most prized pos­ses­sion, al­though many of them may be mort­gaged in lieu of loans. Bet­ter-off or rich fam­i­lies also use real es­tate as an es­sen­tial tool of in­vest­ment. There­fore, prop­erty tax will have a di­rect im­pact, mainly neg­a­tive, on or­di­nary peo­ple’s in­vest­ment, rents and loans. In other words, prop­erty tax might add up to a small amount for the State, but it af­fects the core in­ter­ests of a very high per­cent­age of peo­ple and is thus bound to raise their con­cern.

Be­sides, or­di­nary res­i­dents also hope that the prop­erty tax is used to bridge the widen­ing so­cial gap. Since China re­lies heav­ily on in­di­rect taxes for its tax rev­enue, al­most all the tax bur­den is borne by or­di­nary peo­ple (as con­sumers). But the doc­u­ment is­sued by the plenum, in prin­ci­ple, says that the per­cent­age of di­rect tax will be in­creased, and the pub­lic hopes the tax on pri­vate prop­erty will help pre­vent the so­cial gap from widen­ing fur­ther.

Of course, peo­ple’s opin­ions on prop­erty tax dif­fer, be­cause dif­fer­ent peo­ple own dif­fer­ent num­ber of houses which they got through dif­fer­ent chan­nels. For ex­am­ple, many fam­i­lies have one or two houses in which they or their rel­a­tives live and it might not be fair to col­lect prop­erty tax from them. Hence, be­fore in­tro­duc­ing the realty tax, the au­thor­i­ties need to con­sider the in­ter­ests of peo­ple across the so­cial di­vide and al­low them to ex­press their views and reser­va­tions freely.

The heated pub­lic de­bate on prop­erty tax has shown that peo­ple have come to know where their in­ter­ests lie. So prop­erty tax should be del­i­cately planned and im­ple­mented to bet­ter pro­tect peo­ple’s in­ter­ests and nar­row the widen­ing so­cial gap.

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