By Hua Ti (华提)
Issue 592, Oct 29, 2012
Nation, page 16
Translated by Max Roberts
Original article:  [Chinese]

Xu Shanda (许善达), a former deputy head of the State Administration of Taxation, recently publicly expressed his opposition to the introduction of a property tax in China. Xu said that such a levy was a tax on existing value and argued that China should instead be collecting revenue from newly-created value. Xu opposes expanding the scope of the current trials that are being piloted in Chongqing and Shanghai and says that the government should focus instead on taxing property transactions, a method which is better suited to the current conditions.

Xu isn't the only former official who has expressed concerns about the property tax. Wu Xiaoling (吴晓灵), deputy head of the National People’s Congress (NPC) Finance and Economics Affairs Committee and former deputy governor of the central bank, recently voiced her opposition to expanding the trials, arguing that the country should be simplifying the process of collecting property tax and focusing its efforts on maintaining order in the property market instead. Ms. Wu also noted that, as the levying of a property tax is such a serious issue and given the current lack of clarity, it should be immediately passed to the NPC for debate.

That two former high-level officials with backgrounds in finance should come forward with such strong views on the topic has naturally attracted considerable attention. Property tax has been a hot topic for some years now; it’s an issue that affects everyone. At the same time there has been a lack of certainty about whether it will be introduced, what the tax will look like or what policy makers hope to achieve by introducing the tax.

In the absence of any clear signals from the government, the cities of Shanghai and Chongqing, where trials began in 2011, have been crossing this river by feeling the stones beneath their feet. They don’t seem to have made much progress - treading water rather than moving forward.

While these two cities have pushed ahead with the property tax trials, the issue has continued to be widely debated in the country’s media. In the midst of this messy debate, at last year’s Central Economic Work Conference, the central government again signaled its intentions to push ahead with property tax reform and expand the trials.

Xu and Wu grabbed headlines not only because of who they are, not only because of the complexity and confusion that surrounds the issue at the moment, but most importantly, because their views reflect the concerns of the public.

For years now, articles introducing the idea of property tax and arguing for the necessity of introducing it have appeared in domestic media. Experts often hold up the US as an example.

Property taxes exist in all 50 states of the union and everyone pays no matter how many properties they own. Rates range from 1 to 3.3 percent, and are paid annually.

They are an important part of the tax code and the public are not generally opposed to their collection since they are collected not by the federal or state governments, but by the county, city and school district and spent on services that are closely tied to the welfare of the people.

The beauty of American neighborhoods, their free public schools with their free school buses and their safe communities, all of these are, to a large degree, reliant on the revenue from property tax.

But the doubts that people have about a property tax will not be answered by the earnest advice of experts and academics. Instead, as the call for introducing a property tax increases, the public became a becoming progressively more concerned about the new tax. If the tax is eventually introduced, in accordance with the general practice which collects the tax on existing value rather than on newly-created value, then those crying foul the loudest won’t be vested interest groups, but the general public.

There are many reasons for this, but the most obvious is a lack of trust in the behavior of government. The people's biggest concern is that although their tax burden will increase, this may not lead to improved social welfare or services. We should recognize that their concerns are not without justification.

We only need to look at recent minor moves towards budget transparency which have required some levels of government to reveal details of their spending on overseas travel, cars and hosting official events (the “three publics” or “san gong” as it’s referred to in the Chinese media).

Despite the pressure to reduce spending on these items that comes with their publication, governments have not reduced outlays.

When power remains unchecked, when governments simply go through the motions as they draw up their budgets and when there is no concerted effort to tackle corruption, any new tax is bound to be met with a public backlash. This is particularly true when taxes are so controversial to begin with.

With this in mind, I believe that when debating the introduction of a property tax, which is an important issue of general concern, the public should be involved in the whole process, from policy decision to enactment. Just as Wu Xiaoling suggests, the property tax question should be sent to the NPC for discussion and debate.

With the right procedures, we should have faith that the intelligence of the people will result in a decision that’s in the best interest of the public.

At the same time, we should speed up the process of increasing budget transparency and supervision, so that the exercise of power is conducted in the light of day. This is how to get public support for all kinds of reform.

Zhu Na, Ji Menghui and Dou Yiping also contributed to this translation.