China's property tax will be city-based, with minimum tax-free threshold: senior lawmaker

BEIJING (Reuters) - China will give local governments autonomy to decide on the actual rate of a property tax to minimize its potential impact on housing prices, a senior Chinese lawmaker was quoted by state media as saying on Thursday.

FILE PHOTO: Workers are seen on scaffolding at a construction site in Nantong, Jiangsu province, China January 1, 2019. Picture taken January 1, 2019. REUTERS/Stringer

Work on a draft property tax in China is “steadily advancing”, senior Chinese parliamentary officials said last week during the country’s annual parliament meeting.

The comment sparked speculation that Beijing may be looking at submitting a draft tax proposal for review this year, triggering a drop in the share prices of Chinese property developers.

Ying Zhongqing, deputy director of the financial and economic affairs committee at the National People’s Congress, the country’s legislature, said the central government will set a few tax rate brackets for local governments to choose from.

The tax will be levied at the current prices of the properties.

“Property tax is a local tax ... So when it is introduced, local governments should have a large degree of autonomy regarding to when it is levied and at what rate,” Yin told the 21st Century Business Herald in an interview.

Yin stressed that the real estate tax, like income tax, will set a minimum tax free threshold to protect the interests of average home owners. It should serve the purpose of deterring speculators, prompting them to sell homes that are not occupied instead of holding them in the hope of ever-rising prices.

“Whoever has a larger house will pay more taxes, and whoever lives in the major cities, or in central areas in a city will pay more taxes,” he said, adding the tax-free threshold could be set at 40 to 60 square meters per person.

China has considered a property tax for more than a decade, with market speculation of its implementation rearing its head every few years. But the idea of a tax has met with push-back from stakeholders, including those who fear it would trigger a sell-off in the property market and cause a sudden correction resulting in systemic financial risks.

Pilot property tax schemes were introduced in cities such as Shanghai and Chongqing a few years ago, but the glacial progress to roll it out nationwide has drawn criticism as home prices continued to rise.

But analysts say Beijing may be accelerating the process now as it just pledged to slash trillions in taxes and fees to spur growth in the economy, and as it enters the third year of its war on property speculation.

Such a tax would boost local governments’ coffers as a much-needed new source of revenue.

Reporting by Yawen Chen and Ryan Woo; Editing by Kim Coghill