The paper captioned ‘Property Taxation in the People's Republic of China (PRC)' says that a broad-based property tax would be more effective in moderating speculative investments in real estate. Cities could start with levying property taxes on new units, or on second units (including investment properties) and high-cost units. In the longer term, all units should be included in the tax base. In this process, standardization of definitions of tax base would increase transparency on the effective tax rates, as well as facilitate the development of a nation-wide appraisal system.

The Paper contends that local governments need to have the clear authority to collect and enforce property tax payments throughout their respective jurisdictions, giving cities a new source of stable, sustainable funding for urban development, which would help absorb existing and new migrants under the announced gradual phase-out of the household registration system.

While pitching for improvement in the local governments' capacity in property taxation domain, the Paper notes that establishing a reliable property data registration requires the commitment of local government resources and adequate skills and technical capacity.

Advocating a phased approach in the realm of property taxation, the Paper says: “Along with revenue generation, redistribution aspects should be considered in property taxation. Thus, a phased approach is recommended with review of experience at each stage, starting at the higher end, where ability to pay is good, and gradually moving down to lower income levels.”

According to the Paper, property tax in the PRC generates modest revenue. Property taxation was introduced in the PRC in 1951 through the Provisional Regulations on Urban Real Estate Tax. After 1985, more regulations were introduced resulting in the coexistence of five taxes: Real Estate Tax, Urban Land Use Tax, Land Value Added Tax, Cultivated Land Occupation Tax, and Deed Tax. However, despite increasing yield, all five types of taxes combined contributed to 21.4% of total local tax revenue in 20122, compared to 73% in the US, and almost 100% in Australia, Ireland, and the UK. As a result, local governments in the PRC tend to rely on other sources of income, such as land leasing fees.

It says that the low yield of property taxes in the PRC is explained by diverse factors. First, the tax structure focuses on taxing transactions rather than possession of property. Second, owner-occupied residential properties are excluded from the tax base. Third, the tax base is narrow and has not been significantly widened over the years, basing tax rates on the original price instead of an updated property market value, a notable loss in light of the impressive appreciation of land and property prices in the last decade. Fourth, despite trials in property valuation conducted by State Administration of Taxation (SAT) since 2007 in several cities, there are no nation-wide established standards for assessment and assessors.