Development, Governance, and Real Property Tax in China by Yilin Hou

Author:Yilin Hou
Language: eng
Format: epub, pdf
ISBN: 9783319955285
Publisher: Springer International Publishing

6.2.6 Examples of Exemption Proposals That Go Against Efficiency

Since the 2011 “property tax” pilots in Shanghai and Chongqing, talk about a possible real property tax has been developing. Against this background, scholars and policy experts have proposed multiple schemes for the tax. One common feature of these designs is to start with a small tax base, providing generous exemptions to facilitate launching the tax. To these experts, the purpose of the tax is clearly not for improving local public services and governance as Hou and co-authors (Hou et al. 2014, 2016) have proposed; rather, these experts may have held multiple policy goals for the tax, such as controlling real estate prices and wealth redistribution. They fear that citizens will vehemently oppose this tax; so, their focus is on how to minimize potential resistance to the tax. These proposals fall into three types by our summary. The following are the major elements of the three representative proposals.

Proposal 1 is the Jiang-Gao (2014) plan—exemptions for a fixed amount of floor space per household or per household member. Specifically, they propose that (1) at least 40 sq m of floor space per family member is to be exempted, and (2) calculation of the tax base starts from above the exempted threshold. To them, the exempted living space is a citizen’s “right to minimal residence” that should not be taxed. The exclusion of the minimal residence is to protect the low income and the unfortunate.3

Proposal 2 is the Jia Kang (2015, the latest version) plan4—exemptions for one housing unit per household. Specifically, the first residence of a household is exempted however large (even up to 300 sq m) or luxurious (high valued) it is. Mr. Jia’s focus is on securing the (political and administrative) support from hundreds of thousands of middle- and senior-level (starting from the rank of bureau directors) officials who are crucial to the smooth launch of the tax. Mr. Jia’s argument goes that these officials spent all their lives working for the government at low salaries. A good home at a prime location is almost the only tangible benefit remaining by the time of their retirement. If this home is taxed at its market value, these people will not be able to keep the home and may have to sell and move away. Jiang and Gao (2014) also support this plan; they even suggest that since each household’s first housing unit is basic shelter and their second unit is for improvement, both units should be exempted.

Proposal 3, known as the Hubei plan,5 goes even further—exempting all units that have already been purchased and owned before the tax is launched; the tax then applies only to new transactions made after the tax has taken effect. For example, if a family already owns five units before the tax takes effect, these five units will all be exempt or “grandfathered.” If another family did not own a single unit and had just recently purchased their first home, their unit would be subject to the new tax.

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