Property Tax in China

Last year China imposed property taxes on large single-family homes, luxury flats, and second luxury apartments.  While property taxes are extremely common in other countries in the world, even the imposition of taxes on these select properties is rare.  Economists argue that expanding the use of property taxes could help alleviate problems with speculation in the housing market and debt troubles in local governments.  

In 2010 local government accounted for 80% of public spending but only collected 45% of the tax revenues which left a $600 billion gap.  To handle this gap, the central government provides much in handouts and charges land-use rights.  Charging for land use is an effective way to make money but causes divisions because urban land is state owned while rural land is collectively owned. This means that rural areas on the edges of urban areas can get removed because of the hazy definitions which leads to civil unrest.  In attempts to calm unrest, displaced rural villagers have been given better compensation but this will make it harder for local governments to repay debts.  Thus a new source of revenue must be found.

Current property taxes only cover the buying and selling of homes with little regard for the value of homes. The Chinese government suggested adding a full property tax as early as 2003, but logistical issues in deciding the fair value of land and ownership have arisen.  Political issues also stand in the way as many party officials own one or more homes so it would not benefit them to pay additional taxes.  Cities seem resistant to the issue however wavering land sales may push them to be more receptive to the idea.

While property taxes are not good for individual citizens, economically property taxes could be very helpful collectively.  It would take a considerable amount of effort to draw up all of the land and property ownership could help by reducing the haziness between government and personal ownership.  The additional revenue from taxes  could also support the economy further and potentially provide a way to expand services to citizens.

http://www.economist.com/node/21546040