The State Administration of Taxation (SAT) issued a notice on
Tuesday saying it would begin collecting land appreciation taxes
starting next month and the tax rate would be between 30 and 60
percent. The change triggered hot discussion in the media,
including the following excerpts:
Jiangnan Metropolis News: The new notice
about collecting the land appreciation tax will not only make the
land system open, transparent and well regulated. It will also end
the era in which the real estate developers could make unreasonably
high profits.
Since SAT released the notice, the value of the country's
property developers has plunged on the stock markets in Shanghai
and Shenzhen. The average decrease of all property developers'
stocks was 9.78 percent on Wednesday.
The central government has launched several measures to control
the real estate market since last year, showing its determination
to break the bubbles in the property sector. This move is the
latest attempt.
According to current rules and regulations, local tax
authorities can decide the tax rates based on local situations. The
rates in Nanjing, Jiangsu Province and Shanghai are both 1 percent.
The low rate is an insignificant part of the property profits.
By setting out the exact framework for collecting the land
appreciation tax, the SAT could change the tax into a strong tool
against the under-the-table deals of property developers, including
faking financial reports and hoarding land. Hence, the real estate
sector may return to its normal level of profit.
Under the latest SAT notice, the tax authorities have more
practicable guidelines for collecting the taxes and real estate
developers are no longer able to avoid paying taxes under various
covers.
The real estate sector has long been considered the most
lucrative business in the country and the sector's tycoons find
their names in the list of China's richest. But their wealth was
accumulated under rudimentary policies and laws.
The latest tax move will cut away a big part of the real estate
profits and will surely help improve the country's land system.
Nanfang Metropolis News: The latest SAT
move on the land appreciation tax may greatly help in containing
the real estate boom, but it is unlikely to realize other
government policy goals for the sector.
The developers will see huge increases in their costs after tax
collection is changed according to the latest notice, especially
for those who had hoarded large areas of land for development. The
developers will probably pass along the increased taxes in the
housing prices as long as their property can be sold.
Local governments will see huge income increases with this tax.
The tax will be calculated in local government budgets, enabling
the central government to better track the revenues.
The new tax guidelines will make it harder for local officials
to manipulate land policy in favor of certain developers. The
developers will find it harder to profit from their hoarded
land.
The decision makers probably also wanted to check land
speculation, encourage the development of low-end property projects
and force the less competent developers out of the market through
the latest tax move.
However, it is unrealistic to expect two birds to be brought
down with the one stone. The property developers will try to reduce
their taxes by raising their costs or by building more luxury
housing for greater profits from the limited land on their
hands.
There is much more for the government to do to get more
affordable housing for common people. This includes granting tax
benefits to low-end housing projects and imposing stricter
supervision on the purchasers of low-price houses.
(China Daily January 19, 2007)