TAX NEWS - JUNE 2010

PRC Tax: Advance tax-collection rate of land value increment tax to be adjusted

In order to promote the healthy development of the real estate industry and reasonably adjust the profits of real estate development, the State Administration of Taxation (SAT) of People's Republic of China (PRC) recently required tax authorities to strengthen land value increment tax-collection management and give full play to the role of its regulation.

Since 1994, People's Republic of China (PRC) has been implementing an advance tax-collection system to the land value increment tax of real estate, with an advance tax collection rate of between 1 percent and 3 percent. The balances will be paid afterwards. Due to certain factors including undetermined costs, the land value increment tax is incalculable according to the income that taxpayers obtained before a project is completed. This part of the income belongs to the scope of collecting the land value increment tax in advance.

The notice said that tax authorities at all levels must change the discordant condition of low advance tax-collection rates and the rapid rise of housing prices as well as adjust the current advance tax collection rate.

Except for affordable housing, the advance tax-collection rate of real estate in eastern provinces will be no less than 2 percent, no less than 1.5 percent in central and northeastern provinces and no less than 1 percent in western provinces. An appropriate tax rate should be collected in advance according to the different types of real estate.

The notice also requires tax authorities to combine the overall promotion work and key liquidation and verification tasks, and focus on the liquidations of three to five items that are over-priced and increasing at a rapid rate. They must submit the liquidation plans for their regions and list the key liquidation objects to State Administration of Taxation (SAT) before the end of June, and SAT will selectively inspect the liquidation conditions of some regions.

Tax authorities should also check and ratify the collection rate in strict accordance with the requirements of tax laws and regulations, setting a no less than 5 percent collection rate. All province-level tax authorities should distinguish between different types of real estates to determine the collection rate based on practical local situations.