Question

who can slove this question?

"In China's property tax, whether it is land value tax or house tax, the tax rate is set by the central government in principle, that is to say, the property tax item tax rate of each county and city government is the same, but why is the effective tax rate different? Please refer to you The learned property tax theory explains this phenomenon.”

Answer 1

Answer-:

China has experienced rapid economic growth since 1978, when it adopted a policy of opening up to the world and instituting economic reform. It has become the second largest economy measured by the country’s GDP, and its tax revenue has experienced an average annual growth of about 20 percent since the fiscal reform of 1994.

However, many subnational governments in China have experienced fiscal stress and incurred large local debt in recent years because of numerous unfunded central mandates and the large fiscal gap between expenditure responsibilities and revenue capacity. For example, in 2008 subnational government in China accounted for 79 percent of total government expenditure, but only 47 percent of total government revenues.

Unlike many developed countries, China’s local governments (provincial, prefecture, county, and township) have not been granted any legal authority for taxing or borrowing, and the property tax plays a very limited role in the local public finance structure. As a result, many local governments turn to extra-budgetary revenue sources, fees for leasing land use rights, other fees and surcharges, and indirect borrowing from banks to finance infrastructure investment and local economic development.

During the period from 1991 to 2008, the land leasing fees (also known as land transfer fees) increased from 5.7 percent of total local budgetary revenue to 43.5 percent. The overreliance on land leasing fees has been criticized as an important factor in pushing up housing prices and in the growth of corruption cases and land disputes in China.

The current land and property tax system in China generates a limited amount of tax revenue, even though five types of taxes are levied on land-related property at various stages of production (table 1). Local governments collect the Farmland Occupation Tax and Land Value Added Tax (LVAT) at the stage of land acquisition and transaction. At the possession stage, the Urban Land Use Tax and Real Estate Tax are collected, while the Deed Tax is levied when the ownership of the property is transferred.

This tax system has many problems and warrants structural reform. First, various taxes on land and property account for only 15.7 percent of local tax revenues. It is an unstable and inadequate revenue source for the Chinese local governments. Local government officials have relied upon other revenues sources, including leasing state-owned land for a large lump-sum fee from developers, to finance infrastructure development and capital projects. In 2010, Chinese local governments collected 2.7 trillion RMB from land leasing fees in addition to 8.3 trillion RMB in taxes and other budgetary revenues. The ratio of leasing fees to tax revenue was 32.5 percent, compared to 4.5 percent in 1999.

Second, China’s current property tax structure focuses more tax burden at the transaction stage than the possession stage. For example, revenues collected from the annual urban land use tax and the real estate tax at the possession stage accounted for only 6.44 percent of local tax revenues in 2008, while about 9.25 percent of local tax revenue was raised at the land development and property transaction stages.

Third, owner-occupied residential property was not included in the tax base for the current real estate tax, thus significantly restricting the government’s ability to capture value from the booming housing market that was fueled by the privatization of public housing, income growth, and massive urban infrastructure investment. By 2010, homeownership rates reached 84.3 percent of the formal urban housing stock, and housing values have experienced substantial increases in the past five years in many big cities (Man, Zheng, and Ren 2011). But the exclusion of the residential properties from real estate tax has resulted in wealth disparity and excessive demand for housing for investment and speculative purpose, raising vacancy rates in many coastal cities.

Finally, unlike the property tax system in many developed countries, the real estate tax in China is not levied on the assessed value of the property. Instead, it is based on the original price minus 10 to 30 percent of depreciation at a rate of 1.2 percent or levied at 15 percent of the actual rental income for leasing property. Government officials have little experience in the mass appraisal of the market value of existing property, a fundamental skill for establishing a modern property tax system.

The Chinese central government has been exploring the possibility of reforming its current land and property tax system since 2003, when it first officially proposed to establish a modern property taxation system. Six cities were selected to con-duct pilot projects in 2006, and that number was expanded to 10 cities a year later.

In 2010 the State Administration of Taxation (SAT), which is in charge of this pilot project, ordered that every province must choose at least one city to experiment with property value assessment in order to verify the housing sales price self-reported by home purchasers for the deed tax. These experiments have played an important role in the technical and information-based preparation of mass appraisal for future property value assessment. On January 28, 2011, the cities of Shanghai and Chongqing were permitted to collect property taxes on newly purchased second homes or luxury residential property, respectively.

Thankyou...