The National People’s Congress Standing Committee, the country’s top legislative body, passed the tax-pilot program on Saturday, the official Xinhua News Agency reported. The State Council, China’s cabinet, is expected to disclose details in the next few months, including which regions this initiative will cover and how the tax rate will be set, people familiar with government deliberations said.
Chinese leader Xi Jinping has long sought to impose a nationwide property tax to curb housing speculation, bring down runaway prices and reduce the financial burden on families already strained by rising education, medical and other costs.
Mr. Xi sees such a tax, which would be levied annually on the value of a property, as a key plank of his “common prosperity” agenda, which calls for spreading wealth more evenly among the country’s 1.4 billion people.
But his broad property-tax push has met heavy resistance from within the ruling Communist Party, including both the elites and its rank-and-file members, The Wall Street Journal reported this week.
An initial proposal to test-run the tax in some 30 cities has been scaled back to around 10 cities, according to people familiar with the deliberations. A new law aimed at advancing the tax across the country likely won’t be finalized until around 2025, the last year of the current five-year development plan, the people said.
The pilot property-tax program passed Saturday by China’s legislature will run for five years, starting from the date when details of the trials’ implementation are released, according to Xinhua. The relatively long pilot measures, analysts say, highlights caution among policy makers in taking on a sector that more than any other defines modern China.
More than 90% of urban Chinese families own their homes, according to official data, and about 10% of the households own at least three properties. Meanwhile, property and related industries account for nearly one third of the country’s output.
Local governments, which derive roughly one-third of their revenues from selling land to property developers, worry that a property tax would cause demand for land to drop. That would hurt their land-sale revenues, which amounted to about $1.3 trillion last year.
Larry Hu, China economist at Macquarie Group, an Australian investment bank, estimates the total value of China’s urban housing to be around the equivalent of $55 trillion. A national property-tax rate of 1% would thus bring in the equivalent of about $550 billion in annual government revenue—only 40% of revenues from land sales.
“To make the property tax count, the government has to vastly broaden the scope and hike the rate, risking a crash of the property market and social unrest from taxpayers,” Mr. Hu wrote in a new report.
The people with knowledge of policy discussions say the property-tax rate could vary depending on region and the size of properties.
One idea under discussion is to gradually test the tax plan in big cities, including Shanghai and the sprawling municipality of Chongqing in central China, which both have already been levying an annual tax on second homes or high-priced units since 2011. Other places under discussion include the southern boomtown of Shenzhen and the southern island province of Hainan, both designated by Mr. Xi as testing grounds for building a “socialist market economy.”
The city of Hangzhou, in the wealthy coastal province of Zhejiang, is also expected to join the tax-pilot program, according to people familiar with the matter. The province, home to the business empire of Jack Ma, the beleaguered Chinese entrepreneur, has already been named as a place to pilot Mr. Xi’s policies aimed at reducing inequality.
The regions picked for the pilot program will also release detailed implementation plans. In some areas, analysts say, local governments will likely lay out tax-exemption areas.
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