Senior economist backs national property tax

The planned rollout of property tax nationwide will have a positive effect on both the economy and the population, a senior Chinese economist has said.

Tuesday's edition of the Shanghai Securities News carried a long article by Jia Kang, former director of the Research Institute for Fiscal Science under the Ministry of Finance, after China's legislature announced last week that it will enact a law to regulate the rollout of a tax tested in Shanghai and Chongqing since 2010.

Property tax will increase the cost of holding homes and prompt owners to sell or let out their extra properties, and thereby raise housing supply, said Jia.

"The tax will to some extent contain skyrocketing home prices in big cities," he added.

In China, the central government shares tax revenues with local governments, who get a much smaller portion of the money but are required to cover a lot of public spending.

"Property tax will probably be collected by cash-strapped local governments and their financial conditions will be improved," said Jia.

Property tax levied on rich people can be used to fund public services and raise social welfare. "Therefore, the tax could help reduce wealth inequality in China, where the Gini coefficient, an index reflecting the rich-poor gap, is quite high," said Jia.

The average tax rate in China is much lower than in developed countries, but the public complain a lot as there are many indirect taxes.

"Property tax is a major direct tax. If society's overall tax burden does not rise, indirect taxes will be reduced," according to Jia.

The economist said the real estate and construction industry is set to remain a pillar of the Chinese economy for decades to come, and the implementation of property tax is "a must."

The Property Tax Law is widely expected to be passed around the end of 2017, but there is no time scale for implementation as many details are yet to be hammered out. Endi