[Asia Economy Reporter Park Byung-hee] China has officially begun the procedure to introduce a 'real estate tax' levied on homeowners.
According to the state-run Xinhua News Agency on the 23rd, the Standing Committee of the National People's Congress (NPC) of China passed the "Decision on Reforming Real Estate Tax in Some Regions" on the same day. The NPC delegated the authority to formulate detailed regulations and implement them to the State Council, requiring the State Council to select pilot regions considering the real estate market conditions. The real estate tax implementation method (regulations) will be valid for five years from the date of promulgation by the State Council, and any adjustments to the application period or cities after that require NPC approval.
This decision by the NPC marks the official start of the procedure to introduce a housing holding tax in China.
China currently imposes transaction taxes when buying and selling houses, but there is virtually no holding tax equivalent to Korea's property tax or comprehensive real estate tax, which benefits owners of high-priced homes or multiple properties.
In 2011, Shanghai and Chongqing were the first two cities to pilot a real estate tax called "fangsanshui" targeting only owners of high-priced homes and multiple properties, but due to numerous exceptions, very few were actually subject to it, rendering the introduction largely ineffective.
Although discussions about introducing a housing holding tax in China have been ongoing for over ten years, concerns about market impact and disagreements over tax calculation and collection have prevented full implementation.
The Chinese authorities' active push to introduce the long-standing real estate tax issue is closely related to the recently intensified national policy of "common prosperity."
The Communist Party of China, celebrating its 100th anniversary, has widely promoted that it has eradicated absolute poverty and entered a Xiaokang society where all citizens enjoy a comfortable and affluent life.
However, the worsening wealth gap in China has emerged as a serious social issue threatening the ruling legitimacy of the Communist Party, and soaring housing prices, already excessively high relative to residents' income levels, have become a symbol of inequality.
Housing prices in major Chinese cities such as Beijing, Shanghai, Guangzhou, and Shenzhen are comparable to those in Seoul and Tokyo, and some areas are even more expensive. Considering that average incomes are still much lower than in Korea and Japan, the housing cost burden on ordinary Chinese people, especially young adults starting their social lives, is very high.
However, with China's economy rapidly cooling and real estate market instability increasing due to the Evergrande Group crisis, resistance to the introduction of the real estate tax is reportedly strong even within the party, raising doubts about whether the State Council can properly promote the pilot implementation of the real estate tax.
The Wall Street Journal (WSJ) previously reported that the nationwide introduction of the real estate tax, proposed by Chinese President Xi Jinping to curb the real estate bubble, is expected to face strong backlash and be scaled back, with the pilot cities reduced from the originally planned 30 to about 10. WSJ reported that Shanghai and Chongqing are the priority cities for the real estate tax introduction, with Shenzhen, Hainan, and Hangzhou also likely candidates.
The pilot introduction of the real estate tax may lead to a series of "wealth tax increases" aligned with China's "common prosperity" national policy.
As a socialist country, China imposes significantly lower taxes on the wealthy compared to developed countries. Not only is there no housing holding tax, but there is also no inheritance tax, which is commonly found in major capitalist countries worldwide.
At the Central Financial and Economic Affairs Commission meeting last August, President Xi emphasized the need to increase taxes on high-income earners and capital income earners to prevent polarization and eliminate distributional unfairness.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
