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China’s tax reforms to curb housing price hikes
February 21, 2013, 10:06 pm

Shanghai is one of two cities currently applying property tax [Xinhua]

Shanghai is one of two cities currently applying property tax [Xinhua]

In yet another step to consolidate its domestic growth policies, China has reiterated its intention to roll out a pilot programme that applies property taxes on new emerging cities in a bid to cap rising real estate prices.

The measure was originally proposed three years ago as a way of ensuring healthy growth of the housing sector.

The State Council, the highest authority in China, which met Wednesday, also urged local city authorities to apply price ceilings on newly constructed homes and projects.

A statement from the Council revealed that a taxation system was currently operating only in Shanghai and Chongqing at rates of between 0.5 per cent and 1.2 per cent.

The Council hoped to expand the current system to other cities as China’s urbanization keeps apace with its forecast 8 per cent GDP growth in 2013.

As Beijing strategists express optimism about the strengthening of the middle class and growth in wealth in rural areas there are fears that housing may not continue to be affordable.

In early January, the ministry of commerce’s data on domestic consumption and investment in China remained steady and helped maintain the momentum of China’s booming construction industry.

The growth in rural wealth is also due to China’s urbanisation policies; migrant workers have been able to pay more thanks to jobs on construction sites of emerging mid-size cities.

The Council’s statements on taxation this week are synonymous with earlier government efforts to narrow the income gap to ensure social justice and social harmony.

“We need to raise income levels of the poor and adjust taxes on the excessively wealthy,” the Council said in October 2012.

The Council’s statement follows up on the achievements of a task force established in October 2010 to study income distribution reforms.

According to recommendations from the National Development and Reform Commission, the ministry of finance and the ministry of human resources and social security, authorities launched a programme to “boost national incomes, deepen reforms on the income distribution system and enable people to share the country’s development achievements”.

Chinese officials say their goal is to double 2010 gross domestic output and per capita income for both urban and rural residents by 2020.

The government will also focus on enhancing and making more affordable low-income housing; a statement announced that 6.01 million affordable units had been completed with another 5.6 million having undergone renovation.

The State Council hopes to complete construction of a further 25 million low-income housing units by 2015 at a price of $37 billion.

Source: Agencies

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