CHONGQING, China (Reuters) - A pilot programme to levy property taxes, the first of its kind in China, is helping cool price rises in Chongqing and will eventually be extended to the rest of the country, the mayor of the country’s biggest municipality told Reuters.
“I’m sure that property taxes play a long-term role in controlling property prices,” said Huang Qifan in an interview at his offices in Chongqing late on Wednesday, adding that the city’s own tax, launched in a trial earlier this year, has already delivered results.
“We’re trying it out in this first year, and I’m sure that next year or the year after it will be expanded within our country,” Huang said.
China launched a property tax on large, expensive homes in Chongqing and Shanghai in January on a trial basis as part of efforts to rein in speculation and housing inflation.
Policy makers in the world’s second-biggest economy have been struggling to pull down stubbornly high inflation rates without damaging the fast-growing economy. Containing rising home prices is a key part of that effort.
Already, Chongqing has expanded its pilot property tax programme, which originally applied only to property transactions completed after its launch in January, local media reported earlier this week.
From October on, owners of some 3,600 luxury homes in Chongqing will have to pay taxes of up to 1.2 percent of their homes’ original purchase price even if they bought the properties long before the tax was introduced.
In a separate interview on Wednesday, Zhao Qiang, the director of the Chongqing government research office, said the city has no immediate plans to expand the tax programme further to include other types of properties there.
Mayor Huang pointed to the city’s comparatively low rate of housing price increases as evidence of the tax policy’s success. Among China’s 70 cities on the property price rise statistics, Chongqing’s increase was the lowest, he said.
“We’re the last,” he said. “That’s one aspect of the role played by the property tax.”
Even so, some government officials and media reports have raised questions about the practicality of expanding the program nationwide, given public resistance, uneven enforcement, widespread exemptions and a low amount of tax actually being collected.
Chongqing, a sprawling port municipality on the Yangtze River, has a population of 29 million, although about half of the residents are actually villagers living within the vast municipal boundaries. The main city has a population of some 8 million.
Huang said he had developed the idea — taxing expensive properties while leaving cheaper ones largely untouched by the tax — after examining the property tax system in the United States.
“We believe that this differentiated tax rate is a reasonable way to guide society. That’s what I concluded after studying the U.S. tax system. Britain is the same, making a distinction between high- and low-end,” he said.
The goal of tax policy, said Huang, should be to use market forces, rather than administrative means, to rein in property market speculation.
“Recently, the purchasing power of many people looking to buy high-end apartments or townhouses has been reduced,” he said. “Because Chongqing has a property tax, it’s the only place that hasn’t restricted property purchases.”
The Chinese government has typically used a more heavy-handed approach to reining in the property market. It has banned developers from accessing the domestic stock and bond markets or trust loans, for example, and in some places governments limit the number of homes that investors can buy or simply cap housing prices.
Additinal reporting by Shen Yan; Editing by Brian Rhoads