The government will impose individual income tax on second-hand
property transactions from August 1, a move that's expected to
further squeeze speculation in the overheated market.
The government will levy an assets transfer tax on second-hand
house trading from individual sellers with a fixed rate of 20
percent, and the base of the tax is transaction price minus the
original price, according to a State Administration of Tax
announcement on Wednesday.
Reasonable costs, including home improvement and facility
maintenance expenditure as well as mortgage interest, would be
excluded from the taxable amount.
Preferential tax treatment will be given to sellers who sell
their house and rent a house to live in until they purchase a new
property within a year after selling.
Homeowners who sell a house that is the only property the family
has lived in for more than five years will also enjoy a tax
exemption, according to the announcement.
According to the rule, taxation bodies should set up special
counters at real estate intermediary agents to collect the
second-hand transaction tax directly, along with other compulsory
taxes on the contract, sale and land.
The policy is a further move by the central government to curb
gambling in the real estate sector and to stabilize prices.
Taxation policy has long been viewed as an effective tool to adjust
the real estate market.
Last year, the government said tax should be collected on
second-hand property transfers within three years of purchase.
In a State Council executive meeting on May 17, the central
government vowed to use a mix of credit, tax and land policy to
cool the currently overheated housing market.
As of June 1, a 5.5 percent transaction tax is now being charged
to people who sell their property within five years of
purchase.
"Those policies, to some extent, have effects on reining in the
market, but (they are) rather slight," said Su Ming, vice-president
of the Finance Research Institute of the Ministry of Finance,
adding that the impact of any macro-control policy would not be
seen immediately.
Su said China was becoming a market-oriented economy and thus
the macro-control policies to date have been prudent.
He said the government hoped its adjustments would keep the
development of the economy healthy.
Yi Xianrong, a researcher with the Chinese Academy of Social
Sciences and a long-time critic of the property market, indicated
that the new policy was just a supplement to the previous
provisions.
"However, the tax is not a practical tool to get rid of real
estate gambling, considering the difficulties in supervising the
whole procedure of the transaction will discount the results of the
compulsory regulation," said Yi.
Agents dealing with second-hand properties believed the tax
would deal a blow, if not very heavy, on their businesses.
Sunco, a nationwide intermediary chain, said that its clients,
house sellers, were rushing to complete their transactions before
the new tax comes in on August 1.
The rush to push through transactions before the deadline is
expected to reappear in Shanghai just as it did two months ago when
house sellers tried to evade a 5.5 percent increase in transaction
fees, said Lu Binbin, general manager of 5i5j Property Company,
East China.
"Obviously, this new taxation measure will reduce the trading
volume of second-hand houses in the market and meanwhile will drive
up the price in the short run," said Weng Haitao, a researcher with
the Shanghai office of Savills China.
(China Daily July 28, 2006)