Recent Reform of Real Estate Tax on Residential Properties in China

Anruo Hao

Dr. Alan Davis

ACCT 522G Advanced Taxation

November 13, 2015

Recent reform of real estate tax on residential properties in China

Introduction

In China, it has already been extremely expensive for the ordinary to buy one house for all family members to live in in recent ten years. However, some rich people could buy as many houses as they want to hold as investment, which leads to increasing prices in real estate market. As the saying goes, having a home and then establishing your own business. Buying a house is a most essential and important issue for Chinese. People who really need houses cannot afford one could cause serious problems in China because people do not satisfy with their living standards. This kind of phenomenon impels China government to press the real estate tax on residential property in 2011. In this paper, I will talk about the reform of real estate tax on residential property and the problems it has. Also I will provide some suggestions.

Background of real estate tax on residential property tax in China

Basic History

There are some significant changes on real estate tax. In 1950, after the founding of the People’s Republic of China, the government released the National Tax Administration Enforcement Regulation, in which the property tax was one of the 14 levy taxes. One year later, in 1951, government pressed the Provisional Regulations of the People’s Republic of China on Urban Real Estate Tax, which combined the house duty and estate duty together as real estate tax. In early 1970s, Chinese government tried to simplify the tax system. The urban real estate tax imposed on the state-owned enterprises and collective enterprises was incorporated into industrial and commercial tax. However, in 1984, government decided to restart the real estate tax and divided it into two categories: real estate tax on residential properties and urban land use tax. Two years later, government released the Provisional Regulation on Real Estate Tax on Residential Property of the People's Republic of China, which was imposed on domestic companies and individuals. Then there are no changes on real estate tax on residential property in the following twenty years.

Current status

In recent years, house prices are increasing rapidly. One reason is Chinese people are trying to improve their living standards (Wong, 2011). After the 2006, China has a dramatic increase in GDP (Figure 1). People are eager for better lives with higher income. They start to buy second houses to improve living conditions with bigger space and brighter rooms. Second reason is that there are more and more rich people to buy houses as investment. Those speculators are looking for capital gain and many of them do not lease out the houses (Wong, 2011). It said that the survey which was performed by State Grid Corporation of China in 660 cites showed that about 65.4 million of residential properties had not consumed any utilities in the past six years (Wong, 2011). With the higher demand, the suppliers increase the price in residential property markets. More and more speculators see the opportunities to earn a big fortune and then enter the market without considerations, which causes people who really need houses to not be able to afford to buy one. This kind of situation creates possible bubbles which could cause serious economic problems in China.

In order to deal with these possible bubbles, the government tries to reform real estate tax on residential property to control speculations. Since 2003, the Ministry of Finance and the State Administration of Taxation in China began to pilot real estate tax in 10 provinces and 32 cities and counties gradually in three batches (Wong, 2011).During this testing time, there was no tax levied. The objective was to test whether the new real estate tax can