BEIJING — China is closer than ever to taxing property owners, analysts say, nearly two decades after authorities began floating the idea.
What’s changed is that Chinese President Xi Jinping now has the political momentum to get the ball rolling on property tax, analysts said. This summer, Xi has emphasized authorities’ commitment to delivering “common prosperity,” or moderate wealth for all, rather than just a few.
And in an essay earlier this month detailing what common prosperity means, Xi called for regulating excessively high incomes, with measures such as tests of a property tax.
means, Xi called for regulating excessively high incomes, with measures such as tests of a property tax.
On Saturday, the top executive body, the State Council, was authorized to conduct such a test for five years in unspecified regions. These developments follow years of trying to limit speculation in China’s property market, which accounts for the bulk of household wealth.
“I think the central government has chosen [the] right time because of the political reshuffling happening before and after the 20th party congress next year, so to really resist a central government policy will be [a risk] to local government officials’ own career,” said Yue Su, principal economist at The Economist Intelligence Unit.
She was referring to the National Congress of the Chinese Communist Party, held every five years to determine top leadership positions.
Property tax talk since 2003
Unlike the U.S., China does not have a blanket tax on property. Real estate ownership in China can also differ. For example, state-owned enterprises have distributed apartments to their employees.
Chinese leaders began discussing a property tax in 2003, but so far only the municipalities of Shanghai and Chongqing have implemented a limited version, analysts said.
The experiences of those two cities in the last decade haven’t created a compelling argument for other local governments to roll out a property tax, Larry Hu, chief China economist at Macquarie, said in a note over the weekend.
In 2020, property taxes in Shanghai and Chongqing accounted for 5% or less of local tax revenue, and contributed far less than what land sales did, Hu said.
More than 20% of regional and local government revenue comes from sales of land to real estate developers, according to Moody’s. But if the property market is successfully tapped through tax channels, it could ultimately bring in significant revenue for local authorities.
Real estate and related sectors like construction account for at least 25% of China’s GDP, according to Moody’s.
