China will enforce a land tax as the country's property boom is showing no
sign of abating.
The move is targeting real estate developers as the central government tries
to cool off the market.
The State Administration of Taxation said on its Website that it will begin
to formally levy the value-added tax on land - 30-60 percent of developers' net
gains from property deals - effective from February 1.
The value-added tax on land was written into a national regulation in 1993,
but was not widely collected due to a subsequent recession in the real estate
sector.
The tax was resumed for the first time in Shenzhen at the end of last year.
At present, some regions in China are collecting the tax at a rate of one to
two percent on sales of newly developed houses, while other areas have yet to
start collection.
The new policy shows that the government clearly requires the levying of the
tax, and will continue its macro-control over the real estate sector this year,
analysts say.
The administration said the tax will be collected as soon as a single
development project is finished or transferred.
"With the reintroduction of the value-added tax on land, the property sector
will rank among the industries with the heaviest tax burdens in China, and
falling profits will dampen future investment in the sector," the Oriental
Morning Post quoted an unidentified developer in Shanghai as saying.
"Some developers may suffer great pressure once the tax is formally
collected," Xiao Li, secretary of board of the Shenzhen-based developer China
Vanke Co, Ltd, told the Shanghai-based newspaper.
"Vanke had set aside 300 million yuan (US$37.5 million) by 2006 in
preparation for the reintroduction of the tax," Xiao said.
In 2006, the price of newly built commercial houses in many Chinese cities
saw a year-on-year increase of more than 10 percent, despite government policies
aimed at stabilizing prices.
Investment in China's real estate sector surged 24 percent year-on-year in
the first 11 months of 2006, three percent higher than that of the first
quarter.