China property owner tax better than transaction levy: Think-tank

BEIJING (REUTERS) - China should expand property ownership taxes to more cities instead of imposing a 20 per cent capital gains tax on transactions if it wants to prevent a steep rebound in home prices this year, a top state think-tank said on Thursday.

The Chinese Academy of Social Sciences (CASS) said the transaction tax could have the side-effect of raising home prices as home sellers have tended to transfer it to buyers.

"If the 20 per cent capital gains tax is strictly enforced, we think overall home prices might have relatively big gains (this year)," Mr Li Enping, a researcher at CASS, told a media conference.

"If the focus of policy enforcement turns to raising property ownership taxes, home prices might keep a stable trend or even drop slightly," Mr Li said.

China's home prices have seen a upswing since around the middle of last year and new home prices rose 3.6 per cent in March. This forced the government to launch a fresh round of measures last month, including the 20 per cent levy on pre-owned home sales.

But strong housing demand is helping home sellers transfer the tax to buyers, which in turn will push up existing home prices. There is no official sanction on sellers if they transfer the tax, while many cities have yet to say how they plan to enforce its collection.

To be effective, property transaction taxes would need more detailed work on how they could curb speculation without hurting genuine buyers, CASS said. Many prospective buyers could turn to the new home market to avoid the tax, thus also fuelling prices.

Its remarks come after domestic media reported that Shenzhen and Hangzhou could launch property ownership taxes, though this has not been confirmed by taxation authorities in either city.

The cities of Shanghai and Chongqing were the first in China to enforce property ownership taxes, which are paid annually, in 2011, but the measures covered few properties and at less than 1.2 per cent were seen as too low to be effective.