China is considering implementing a property tax but faces several challenges. There is debate around whether the tax should be based on property size or number of properties owned. Additionally, China's land use system grants time-limited land use rather than ownership, so a property tax would require changes to allow perpetual land ownership. Experts predict exemptions for most homeowners and the tax only applying to large properties. While property registration systems are being established nationwide, a fully effective property tax system will take years to implement due to the complex issues involved.

1. China's Property Tax Has a Long Way to Go
By
Yimian Wu
The standing committee of China's National People's Congress included a property tax bill in its
legislative plan this month, but experts say it will be a long time before China actually enacts the
tax, which faces several hurdles.
There are debates on two issues: whether residents should be taxed on the size of their
properties or the number of properties they have, and whether China should eliminate its
70-year residential land use system so that individuals can "own" -- and pay taxes on -- their
land in perpetuity. (China's land use system does not entitle a resident to own the land itself or
any minerals thereon, but only to use the land.)
Property Tax for Income Allocation
Ying Dou, China tax manager at Grant Thornton LLP, predicted that there will be a tax
exemption for regular property owners and that the tax will be imposed only on large properties.
She questioned the fairness of taxing residents based on the number of properties they own,
saying, "What if the first property a resident owns is a villa?"
"It is hard to predict which approach will be adopted, since each has its reasonableness but also
drawbacks. One thing for sure is that there will be heated debates on this topic during the
legislation process. And it is even possible to end up with a hybrid approach," said Vickie Lin
with EY's China Tax Desk.
"Currently, most taxes are imposed on corporations on construction activities, transactions, and
[the right to use] properties," she added. "For individuals, taxes are only levied on transactions,
currently." One of the government's key objectives, she said, is to include individuals in a
property tax.
The main taxes in a residential property transaction include deed tax, business tax, capital gains
tax, and land appreciation tax, which add up to around 10 percent of the transaction price,
according to Joe Zhou, head of research in East China at Jones Lang LaSalle Inc.
What Happens After 70 Years?
China's property law grants residents the right to land use for a specific period of time ranging
from 40 to 70 years, depending on the purpose for which the land is used. For example, the
land use period is 70 years for residential properties, 50 years for industrial land, and 40 years
for land used for educational and cultural purposes.
Central Party School researcher Tianyong Zhou told the Guangming Daily in China that if the
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4. law allows a resident to continue living on his property after 70 years but denies him ownership,
it becomes a rental arrangement in essence. The government has no legal basis to tax a
resident if the resident has no permanent ownership, Zhou said.
The property tax could be a solution to the land tenure issue in China, Joe Zhou said. He said
the government has not yet announced any plans regarding the 70-year land use rule, but he
guessed that a property tax might enable residents to keep renewing their rights to use the land
every year after the 70-year deadline expires.
Dou said residents are taxed on the right to use the land, not their ownership of the land. If you
call it [a] rental, then [the property right] is the same before or after expiration, she said.
Based upon the principle of current property law in China, residents could extend the right of
use of their property after 70 years, she added.
Still a Long Way to Go
Lin said another key issue is the registration of property.
In March, China announced a planned national property registration system that will allow local
governments to document and share registration information. Many observers think the
registration system is being put into place in preparation for a property tax.
Lin said the registration process is expected to be completed this year for major cities, in 2016
for all cities and in 2018 for all cities and rural areas. The property tax cannot be effectively
enforced without a good property registration system, she said.
In 2011 China set up property tax pilot programs in Shanghai and Chongqing to control rising
housing prices. Both programs levy tax on the transaction values of the properties. In Shanghai,
the program targets residents who purchase second properties and in Chongqing, the program
targets luxury properties such as villas. (Prior coverage .)
Upon the first three months of the pilot programs, the housing prices and trade volumes
decreased slightly, but later on, statistics showed that the tax had almost no impact on the
housing prices, Lin said.
If we refer to the experience in Shanghai and Chongqing, she said, an initial reaction [to a
property tax] may be expected, but it is not likely to have a big impact over the long term.
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