Property tax is a very important category of taxation, which
does not yet exist in China.
Without such a tax, it is difficult for the State to adjust
social and economic relations and the local governments receive
less financial resources. Therefore it seems reasonable that a
property tax be introduced.
The property tax now in government discussion is called wuye
shui tax on real eastate. Many think it should be called caichan
shui property tax, according to its more universal meaning. Wuye
shui easily leads people to think that it is a tax only on housing
or that its purpose is to adjust housing prices.
It would be totally wrong if the government had wanted to adjust
housing prices by introducing this tax because it would not help to
realize this goal.
To establish a property tax at a rational rate will help promote
social fairness and save economic resources. Rich families have
more property so get more service from society. For example, the
rich benefit more from social stability and a low crime rate.
Poor people also need social stability and a good environment
but they gain less financial benefit from these. Therefore it is
only right for the rich to pay a greater property tax. The concept
of the rich being more heavily taxed than the poor should be
popularly accepted.
Not only should there be a rational tax rate for the property
tax, but there should be a rational starting point for taxation. A
low tax rate may not cover the cost of taxation nor play a positive
function, while a very high tax rate may affect economic
vitality.
Property tax should be collected not only on housing but also on
land. Taxpayers should not only be families but also profit-earning
organizations. The property tax should include all kinds of
taxpayers to avoid evasion.
For example, property tax can be collected to cool down
individual housing speculation. But if enterprises are not taxed,
individuals could transfer their personal properties to companies
to evade taxation.
It is said that families would be taxed according to the floor
area of their homes. This has aroused much criticism. The floor
area of many rural homes is much bigger than those of urban
residents and a 100-square-meter home outside the Fifth Ring Road
in Beijing costs less than a 30-square-meter one in the downtown
area. Should rural residents pay more? Should the owners of bigger
houses pay more tax?
From the angle of resource conservation, it is necessary to
collect property tax on land. At present there is only the land use
right transfer fee, no property tax.
To impose property taxes on land will increase the cost of
accumulating land and help curb land speculation. But according to
our current economic system, there is no basis for collecting
property tax on land because rural land is collectively owned and
urban land belongs to the State.
This seems to be a predicament, which indeed shows the defect in
our land system. So, in my opinion, it is essential to reform the
land system before introducing the property tax.
Once the taxable holdings include factory buildings and land, it
would be even more ridiculous to tax only according to the
area.
Then there is the question of how to measure property values.
The self-reporting method adopted by many Western countries is a
good one. Enterprises normally would not underreport their property
value because there are related mortgage loan issues.
Families would not underreport the value of their property
because of the possibility of government buy-outs. Should the
government need to demolish their homes, they would not want to be
paid an undervalued price.
The author is a researcher with the Rural Development
Institute at the Chinese Academy of Social Sciences
(China Daily March 14, 2007)