It has been billed as the answer to rampant property speculation, local government reliance on revenue raising through land sales, and even income inequality. But a recent announcement from Finance Minister Xie Xuren, giving further details on China’s property tax reform, has been greeted with contempt by some observers in China’s blogosphere.
The reforms would see the current system, which raises revenues largely via a one-off lump sum tax when a property is bought, eventually replaced with regular tax contributions made throughout the ownership of a property.
Controversy over the reforms has been raging in the media and online. A cutting essay posted to Sina Weibo, China’s Twitter, on December 3 entitled “Eight Major Doubts about the Housing Tax” accuses anyone who welcomes the reform as being either “brainless” or “brainwashed.” The article was apparently written by someone called Du Meng (@徽湖) though it was published by Zhao Xiao (@赵晓), a Beijing University of Science and Technology Lecturer with over 4.5 million followers. It has since been reposted over 25,000 times.
The expletive-peppered rant first compares the reform to a eunuch masquerading as a big-breasted beauty, before launching into eight arguments which range from “no kind of tax is a good tax” to the writer’s belief that “even without the housing tax, the best and brightest of China have long been fleeing. Launching the housing tax will only catalyze this.”
More surprising than Mr Du’s creative use of profanity is the support that fellow web users have shown. @独行的老猫 wrote, “What are they [the government] doing for the people? If it’s not blackmail then it’s daylight robbery; they are beyond redemption.”
According to @田忍冬, “The biggest benefit of the housing tax hasn’t been mentioned: The national consciousness is finally going to be enlightened [as citizens realize they are being cheated]! Because of this, the property tax will end up being loud thunder and little rain. It won’t be introduced.”
Problems with the current framework
It has in fact been a long slog towards reform and implementation of China’s property taxation system. Under the current framework, homebuyers face a multitude of property-related taxes headed up by the one-off transaction tax, which comprises roughly one third of the cost of a house. The new tax would be similar to the American system in that homeowners would be taxed regularly. Details on how exactly this would be calculated haven’t been set, but the aim is to differentiate the amounts homeowners will pay in line with the size, value and location of their property.
A regular tax would in theory be a deterrent to speculators who hoard empty property. With fewer speculators making purchases, more housing stock would hit the market, lowering prices. The measure could also help remove the distorting influence of local governments, who have come to rely on the transaction tax as their major revenue raiser.
With so many potential benefits to an overhaul to the system, one would be forgiven for asking why some online are getting so worked up by the new measures. Perhaps a clue to the source of the anger and mistrust surrounding the policy can be found in Mr Du’s rant: “More than 10 years ago, land financing [the practice of governments confiscating land at low prices, then selling the parcels at a mark-up to developers] allowed the GDP of this country to rapidly increase … but it came at the price of farmers who lost their homes, and the residents of towns and cities who had their wealth drained away. As the land dividend gradually makes its exit from the stage of history, you once again come up with housing taxation as your ‘wealth pump’ [i.e., a way to siphon wealth from the populace].”
Ironically, the one group even more opposed to the reforms are local officials. Trials in the megacities of Chongqing and Shanghai raised a mere trickle of revenue, as the two local governments larded the rules with exceptions in order to avoid further burdening an already tightly-controlled property market. Under the Shanghai trial, only those who owned property larger than 60 square meters per person had to pay up. In Chongqing, the tax raised just 100 million RMB (about US$16 million), compared with 82 billion RMB (about US$13 billion) in revenue from tried and true land sales.
Despite opposition from both camps, the central government has consistently reiterated its determination to make the reforms happen. The question now is whether in the long run reforms will make the housing tax the new “wealth pump” as some fear, or whether it will be the genuine income re-distributor that finance officials claim.