On 23 October, China’s top decision-making body in parliament authorised the State Council, to pilot a scheme to tax residential and commercial property in designated cities which are yet to be disclosed. The question as to whether to tax properties or not is a debate that has been going on for over ten years in China.
Despite homeowners and multi-property owners crying out against this new scheme, they have finally decided to roll out tax on residential and commercial properties in 10 areas, a reduction from the original plan of 30 areas.
China’s Cabinet will release a list of the 10 pilot areas and formulate details of how the scheme will be implemented but have given no timeframe on when this will be.
At the same time, the local governments in each area will be required to enforce and uphold the new tax scheme. This scheme is planned to last five years and will begin when the Cabinet announces the details.
If they wish to continue the scheme then they will need to request it from the top decision-making body with the Chinese government once the first five years is over.
This pilot program will play a crucial role in making national property tax legislation, which will happen in due course, and could be the most significant property reform in recent Chinese history.
In response to the new scheme, economist Ma Guangyuan reckons that the tax scheme will start in areas where the house prices have been going up fast.
In his words, it should be a combination of cities of different sizes and levels, given that the reform will expand across China. However, to begin with, the tax rate won’t be too high, and people who own less than 60 m² will likely receive an exemption, as speculated by Ma.
In addition, Ma comments that he believes that the final list of pilot areas will be ready to be announced by year-end.
This property tax reform is the most significant one seen over the past century in China. It is a move to support Xi’s Common Prosperity – making home somewhere to live, not a way to make money.
Still, considering the recent debt crisis in China’s property industry, insiders believe that the reform will be a mild one to begin with. Overall, this is an exciting development in China’s housing industry and one that is focused on the benefits of the everyday people that live in China.