MNI EXCLUSIVE:China Property Tax May Be Delayed For Recovery

--China Property Sector Seen Leading Recovery, New Taxes Could Dent Growth

By Wanxia Lin

     BEIJING (MNI) - China's reviving real estate market looks set to be a

driver of economic recovery from the Covid-19 slowdown, likely prompting Beijing

to hold off from moving ahead with a tax on property, policy advisors told MNI.

     The central government recently toned down long-considered plans for the

imposition of a property tax, stating in a document on May 18 that legislation

for the levy should be introduced "properly". This word contrasted with

"steadily", which it had used in 2019, and probably indicates a more cautious

approach, noted Zhang Yiqun, director of a fiscal studies institute affiliated

with the Jilin province finance department.

     With real estate development and property investment seen as robust in

recent weeks, even as exports and household spending slow, Zhang said few local

authorities would be willing to pursue a tax that could, in the short term at

least, lead to lower house prices and property investment. It could be three

years before new taxes should be considered, as economic uncertainties will

persist even as the pandemic eases, he said.

     "The new tax should be rolled out when the economy rises," Zhang said.

     --REFORM

     The gear change in progress towards a property tax comes as already

stretched local government finances come under increasing strain, noted a

research fellow at a think tank ,who asked to be anonymous.

     A property tax, levied regularly on owners, could gradually become a stable

substitute for revenues from selling lands, the researcher said, noting that

local governments' revenue was sapped by the switch from business tax to

value-added tax as of 2016. The central government shares 50% of VAT tax

payments.

     "This [property tax] could be a key focus over the next Five-Year Plan

period (2021-2025)," the source said, adding that if the authorities did move

ahead with plans to implement the levy they might soften the economic blow by

reducing taxes on property purchases by an at least equivalent amount.

     Rolling out a property tax now would weigh on homeowners' disposable

income, said Kuang Weida, director of the Urban and Real Estate Research Center

at the National Academy of Development and Strategy.

     Local governments should be given more autonomy in deciding when to begin

collecting the tax, he said, noting that many authorities, particularly outside

first- and second-tier cities, will have to rely more on tax income as they run

out of land and other assets to sell.

     Fiscal pressure will become the norm for local governments, even as the

pandemic ends, as they contend with falling revenues and over CNY20 trillion of

debts, according to Zhang.

     Local government debts totalled CNY 21.31 trillion yuan by the end of 2019,

before Covid-19 hit their finances, Ministry of Finance data shows.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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