After more than a decade of debate, China's effort to impose an annual property tax remains a distant goal, largely due to controversy over the basis of the taxation and the technical hurdles of instituting it, with some industry experts expecting the first legislative step toward such a system no earlier than 2020.
Property taxation garnered widespread attention during China's 2018 Two Sessions government conference, with Premier Li Keqiang declaring that officials would "steadily" speed up property tax legislation, an indication of how important the government considers the issue as it sets its top priorities for 2018.
The Two Sessions, which kicked off March 5, marks the annual gathering of China's parliament and top political advisory body.
While the imposition of property taxes appears imperative in the government agenda, major questions remain unanswered before a consensus on when and how to implement nationwide property taxation can be reached, experts say.
First, China, differing from many developed countries, keeps the ownership of land and properties separate, with the state owning residential plots and private individuals purchasing 70-year land-use rights. Local governments can generate income from the transfer of such rights.
"Property owners are already paying a 70-year leasehold fee for land, which is included in the home purchase cost; there's no reason to impose another levy," Dong Dengxin, a finance professor at Wuhan University of Science and Technology told S&P Global Market Intelligence.
Exactly what the taxable asset encompasses — whether it be the land, usage rights or the reinforced concrete above — has to be defined, said Gary Deng, chief marketing strategist at Fineland Real Estate Services Group Ltd.
Besides the questions surrounding taxable asset, the possible problem of multiple taxation has also drawn loud criticism from industry players and homeowners.
Huatai Securities estimates there are already 10 property-related taxes — including land value increment taxes, urban land-use taxes, deed taxes and personal income taxes — and as many as 70 different kinds of property-related fees incurred during a property's construction and transfer phases in China.
Dong added that the introduction of property taxes is not an isolated reform, but part of the restructuring of China's entire tax system to eliminate duplicate taxation.
The second issue is how the tax is collected.
Finance Minister Xiao Jie in 2017 confirmed the government's plan to tax individual homes based on an appraisal value. But no consensus has been reached on assessment methods and the starting point for levying the tax, given the current high in home prices in many major Chinese cities and huge wealth disparities.
"There are difficulties in introducing a widely accepted valuation method," said Liao Qun, chief economist at China Citic Bank International Ltd.
Former Finance Minister Lou Jiwei, told reporters in Beijing March 6 that the preparatory work for property taxes has been facing "many technical problems," and tax collection is one of the most complicated issues since it requires the amendment of other tax laws.
The Chinese central government first initiated the idea of a property taxation system in 2003. Since 2011, it has conducted small trials in Shanghai and Chongqing.
However, since the measures were not accompanied by wider reforms to reduce their overall tax payouts, residents suffered over-burdensome tax bills.
Although the current government is determined to accelerate drafting property tax laws and aims to fully implement taxation reform, including property taxes, by 2020, industry experts are not convinced it will happen by then.
The legislation of property taxes must go through seven steps, including soliciting public opinion and reviews by the Standing Committee of the National People's Congress, Deng said, "And we are just at the first step."
"It will be a very long process filled with many controversies," he said, "I don't think a draft can be rolled out by 2020."
Deng added that another thorny issue is that China has yet to establish a unified real estate registration system, which is fundamental for authorities to ascertain the number of properties an individual owns.
Experts said tax reform is unlikely to significantly impact home prices, given that prices are mainly determined by demand and supply. Rather, it is an important piece of the government's long-term plan to give local authorities a new, stable revenue source and reduce their dependence on land sales, which has led to sky-high property prices.
