The property tax pilot has been further sped up. Decision-makers have required the active and careful implementation of the legislation and reform of property tax, and that the pilot work be done correctly. On Oct. 23, the Standing Committee of the National People’s Congress (NPC) approved a decision authorizing the State Council to carry out a five-year pilot of property tax reform in some regions. An overall plan for the property tax is expected to be announced soon. The pilot is an important part of promoting the property tax in a comprehensive way and considering its complexity and sensitivity, the decision to carry out the pilots immediately is both necessary and correct.
A property tax will help restrain speculative behaviors and luxury housing consumption, regulate national income and promote common prosperity. Over the years, however, it has attracted attention and caused controversy, because it is not only directly related to local finance but also involves the interests of every citizen. It is quite normal for different regions and groups to have different views on the property tax given their own interests and perspectives. Now, the focus is no longer on whether these pilots should be launched, but rather on how to do them properly. The key is to seek the greatest common ground of all parties and help build a consensus to create a stable environment for the reform. Therefore, it is crucial to strengthen expectation management and guide expectations for the implementation of the property tax pilots. The essential purpose of expectation management is to maximize predictability. This basically depends on a clear path designed by top leaders and clear policy objectives of governments at all levels, as well as transparency in legislation and policy-making.
China should continuously sum up the gains and losses through these pilots and steadily expand the reform to the whole country, which is the basic experience gained from the reform and opening up. A few months ago, the Ministry of Finance (MOF) and other relevant departments held a symposium with local governments, experts and scholars, demonstrating China’s initial efforts in pooling ideas for the pilot. Issues of particular concern shared by all sectors of society — which cities will be appointed as pilot cities and the issues surrounding the rules and patterns of the property tax — will be gradually specified in the pilot measures and the local implementation rules.
It should be noticed that the five following years will be full of uncertain factors, which not only emphasize the importance of expectation management but also reveal the difficulty of such management. China’s economy is facing many internal and external risks and the property industry is going through difficult changes. According to the policy that “houses are for living in, not for speculation,” the property industry is no longer a tool for short-term economic stimulus, therefore the market is expected to avoid drastic fluctuations. However, as the property industry market has seen uneven development in recent years, the situation is severe and the regional differentiation has been further aggravated. In this context, the property tax pilot project will undoubtedly face many obstacles and difficulties, and to steadily promote the project and bring stable expectations to the public will become a serious challenge for pilot cities to deal with.
Scientific tax management models and procedures are the prerequisites for the success of property tax pilot projects. There are many significant parts of the pilot project, for example, how to set the property tax threshold, whether it will be set according to the possessed area or other criteria; how to set different kinds of property tax according to different family structures and categories of the property. “Guiding rational housing consumption and economical and intensive use of land resources” is one of the purposes of the property tax, which means that the property tax should be targeting those investing or even speculating in housing, instead of those who just use their houses to live in. Another noteworthy issue is that there are already quite a few taxes relating to real estate which form a large proportion of fiscal and tax revenues. Once the implementation of property tax gets underway, the adjustment of those taxes and dues should also be placed on the agenda. While raising the total tax revenues, tax justice should also be respected. In addition, major reforms should be implemented on a legal basis to make sure that legislation and pilot projects run parallel. The principles of scientific legislation and democratic legislation must be followed. “Making laws in time” is not only a requirement when empowering the Standing Committee of the NPC, but also an efficient measure for stabilizing the public’s expectations.
The pilot cities should also avoid giving unrealistic expectations to officials and the public. To make property tax replace land finance and the main tax of the local taxes is the practical reason why many officials and scholars propose a levy on property tax. Many people expect property tax to become the main source of income for municipal and county governments, while many local governments also place high hopes on it. However, how the property tax will affect local finance depends on the local economic development and the real estate market, as well as on the design and specific collection of taxes. Real estate greatly varies in different regions of China. In eastern cities with large housing volumes and high prices, property tax can bring certain increments to local finance, but this might not be the case in the central, western and northeastern regions. Some local governments may balk at pilot projects because of concerns about the local property market, which should be taken into account in the reform.
In particular, it is worth noting that property tax may have some impact on housing prices, but looking at the experience of other countries, the impact will not be very significant. Housing prices are, after all, determined by supply and demand. Some people have unrealistic expectations of the effects property tax will have on reducing house prices and narrowing the gap between the rich and the poor. These illusions need to be gradually corrected through pilot projects.
In short, to do well in the expectation management of pilot property tax projects, the interests of all parties should be balanced, channels for all groups to voice reasonable appeals should be made available and citizens’ right to be informed should be respected. The public voice will not necessarily lead to a public uproar, and various demands can be delivered to the legislative and policy-making process in an orderly manner in accordance with the law. Allowing the masses to participate in legislation and policy-making is entailed in scientific, democratic and law-based policymaking, and is the embodiment of building a country under the rule of law. Therefore, during the property tax reform, the principle of publicity and transparency must be implemented in links including collection and use of property tax, as well as in the evaluation of the effect of pilot projects.
There are still many issues concerning property tax that need to be discussed. A decade ago, Shanghai and Chongqing piloted a “real estate tax.” The current property tax reform has been granted a five-year pilot period, which shows decision-makers’ deliberate attitude toward the reform, and also reflects the complexity and difficulty of this issue. Five years is neither too long nor too short. Only by reasonably guiding the expectation of pilot property tax reform can we make pilot projects proceed smoothly and realize their intended goal of “guiding rational housing consumption and economical and intensive use of land resources and facilitating the steady and sound development of the country’s property market.”
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