TAX NEWS - JUNE 2010

China Tax: Chinese Property Tax Reform Approved

by Mary Swire, 03 June 2010 -- Chinese property stocks have again been adversely affected, as the Chinese State Council, China's highest decision making body, approved a "gradually accelerating property-tax reform" as part of a radical fiscal revision taking place under the auspices of the National Development and Reform Commission (NDRC), China's top economic planning body.

The property tax was reported to be applicable to properties for lease or investment rather than owner-occupier residences. The present taxes in China are levied only at the point of transfer, but a property-ownership tax is thought by analysts to be the most effective way to curb speculation in real estate.

The NDRC was quoted by Xinhua as saying it was working on a plan designed to promote the "healthy development of China's property market," and that it was part of the 12th Five-Year Plan to be released in the second half of 2011.

Although the government release did not go into detail, investors expect a further clamp down on the country's booming real estate market, and an annual tax based on the value of housing is expected to take the place of the local land transfer fees.

Localized property tax schemes in cities such as Shanghai, which have been particularly affected by speculative price rises, may proceed in advance of the NDRC plan's publication.

The fiscal revision in the NDRC plan covers a much wider range of issues, according to China Daily, including a "revamping of individual and corporate taxation, streamlining the financial-regulatory regime, improving the social-security system and enhancing the foreign-investment climate."