Property tax, hot topic at China's 2010 parliament session

BEIJING, Mar. 7, 2010 (Xinhua News Agency) -- Whether it is now the appropriate time to launch a property tax and curb skyrocketing housing prices in China has aroused hot debate at the annual sessions of the National People's Congress (NPC), China's top legislature, and the Chinese People's Political Consultative Conference (CPPCC), the top advisory body.
--Property tax can stabilize home prices
Proposals for a levy of property tax mainly hold that it will increase the costs and risks of buying housing and thereby abate the speculative purchases of relatively wealthy individuals. Afterwards, housing supplies would become more rational, and move prices closer to a reasonable track.
Some also expect that a property tax would help de-couple local governments' fiscal revenues from land sales  which are a major source of revenue for local governments, especially when other sources disappeared with the global downturn, and which forcefully contribute to skyrocketing home prices.
The revenue from land transfers in China's 70 large and medium sized cities totaled 1.08 trillion yuan (about 158.82 billion US dollars) in 2009, up 140 percent from a year earlier, according to the China Index Academy, a real estate research institute.
"Land transfers bring only one-lump of income, but a property tax would provide lasting income," said Jia Kang, member of the Chinese People's Political Consultative Conference (CPPCC) and director of the Financial Research Institute under the Ministry of Finance, who added that property tax will increase the ratio of taxes from land in local government's total revenue to 30 percent to 40 percent, well beyond the current 10 percent to 20 percent.
Another CPPCC member Guo Songhai, who works under the Ministry of Housing and Urban-Rural Development, proposed to levy different property tax ratios on primary and second purchases of houses
"For example, the first home purchased by a family requires a 0.2 percent property tax, and for their second, if under 120 square meters in area, would be taxed 0.5 and 1 percent; if over 120 square meters, 1 percent," said Guo.
--More harm than benefit?
The real estate sector in China contributes about 20 percent of fixed asset investment and about 10 percent to GDP, analysts say.
This has raised questions and sparked controversy: has the sector "kidnapped" China's economy, with the government unwilling to take tough measures to curb home prices out of fear it will pull down GDP growth?
Some deputies and advisors claim that it is still necessary for China to use real estate as reinforcement, especially when the global economy hasn't fully recovered from the financial crisis and hence the external demand is still weak.
They fear if property tax comes too early, it will harm China's macroeconomy.
Meanwhile, some say property tax serves as a kind of double tax to the existing land appreciation tax, land transfer fee, urban real estate tax, and others costs.
Gu Yunchang, vice chairman and secretary general of the China Real Estate Association, recommends faster development of the real economy and financial markets, so that there will be more alternatives for investment that can attract money away from the housing market. (By Zhang Yuenan, zhangyuenan@xinhua.org.