The central government is working out details for a real estate ownership tax, which soon will be tested in major cities where housing prices have soared over the last few years.

"The real estate tax is a fundamental move to ensure healthy development of the real property market but will be implemented step by step," said a State Council official earlier this month.

The central tax department is considering revising the 1986 Provisional Regulation on Real Estate to include all non-commercial property. Officials are still deciding the scope of taxation, exemptions and tax rates.

The government also began testing another similar property tax in 2003 that varied according to the property's market value.

Liu Huan, deputy dean of the Department of Taxation at Central University of Finance and Economics, thinks the property tax is a better idea.

"Besides the real estate tax, a house is also subjected to land use tax," Liu said. "Because the property tax already includes the land use tax, the taxation will be less complicated."

While the real estate tax is more of a local tax and rates vary from city to city, tax legislation rests with the central government. Megacities like Beijing, Shanghai and Shenzhen that will be piloting the tax plan still have to wait for the central government to give the green light. So far, only Shanghai has made a detailed plan, while Beijing has remained silent.

Major Chinese websites reported last week that Shanghai will launch the tax in its plan to regulate the housing market. Its tax will be levied annually at 0.8 percent of the property value, determined by the market. Area per capita in a family will be an important factor.