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Uproar over suggested '40-sqm tax' on flats
By Nie Xin

MOST people agree that China's housing prices should be lowered and speculative buying must be curbed. Property tax is on the horizon.

But the issue of levying property taxes has generated controversy and raised questions about fairness, who would be taxed, what kind of properties would be taxed and how much tax would be imposed.

The debate flared up in late November, when the Chinese Academy of Social Sciences suggested in a report that property tax should be levied on residences larger than 40 square meters. It suggested taxing the difference between 40 square meters and the actual area.

The overwhelming public reaction was outrage; most people said 40 square meters is tiny, cramped and expensive, and taxing ordinary people in that size of residence would be unfair. They said they already pay heavy tax on purchase.

Minister of Finance Xie Xuren recently published an article explaining the evolving direction of property taxes in China and the purpose of bridging the gap between the poor and the rich.

He suggested launching a new tax policy based on some test cities and conducting comprehensive research at the same time.

A stone creates many ripples and the 40-square-meter suggestion by the Chinese Academy of Social Sciences was a very big rock.

"The recent report from CASS and the media's coverage have turned the spotlight on this topic, which had been dormant for a couple of years," says Nie Renjie, a senior property investor in Shanghai, who expresses reservations about the proposal.

"If the aim of charging property taxes is to control the price of property and balance the wealth distribution, I really doubt whether this proposal would have a positive effect in the future," he says. "Also, it's not fair for property owners, since heavy taxes have already been charged when they buy a house."

Nie's attitudes reflect those of many homeowners, though he admits that property prices in China are "extremely unreasonable" and says "the bubble will be broken sooner or later."

"We hope high property prices can be controlled, making it possible for ordinary post-1980s people to afford an apartment and get married," says Wu Jingyuan, a 29-year-old local living with his parents. "But I wonder whether charging extra property taxes can effectively reduce housing prices."

The government has not decided on residential property tax policy nationwide - taxable area, rates and other elements.

"If this (above 40-square-meters) criterion is followed, then a young couple living in an apartment over 80 square meters will be charged, which is actually very common now," Wu says.

"This will represent a huge group in major Chinese cities and I don't think it will have a positive impact on adjusting wealth distribution," Nie says.

Many taxpayers are sceptical of the stated aim of using new property tax revenue to fund public facilities and social welfare, saying they doubt local government officials' honesty and capacity to carry out these undertakings. Views on taxing flats

Two years ago, the Lincoln Academe of Peking University surveyed 2,500 households in Beijing, Shanghai, Shenzhen and Chengdu about property issues, including residential property tax.

There has been no recent detailed survey in such big scale.

Some results:

85 percent of households agreed government should enact policies to control property prices. The same percent also said a 23-percent reduction in price would be "reasonable."

42.5 percent of households supported some kind of property tax, 29.1 percent opposed and 28.4 percent said they did not care.

Households supporting a property tax had lower income and education levels than those objecting to a tax. Of those who supported a tax, 35.5 percent of households contained members who were officials or worked in public institutes, much higher than among those who object to a tax, because they can easily meet the criterion of 40 square meters per person.

Of the 2,500 samples, 1,000 were in Beijing and 500 in each of the other three cities. In Beijing, nearly half the households supported a residential property tax, the highest in the survey. In Shanghai, around 40 percent objected to a residential tax, higher than in the other three cities.

Attitudes toward a property tax depend on effects. If a tax could lower housing prices, 65 percent said they would be in support. If revenue could be used effectively for public facilities, the percentage rose to 71 percent.

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