By Chen Zhe (陈哲) and Wan Xiaoxiao(万晓晓)
Issue 632 , August 12  , 2013
Property, page 38
Translated by Zhu Na
Original article: [Chinese]

Economic Observer has learned that Hangzhou will launch a property tax as soon as October.

In May, Hangzhou’s property tax was suspended just before it was to be launched. This was reportedly because the tax plan didn’t match the policy direction of China’s new leadership.

It was learned that the latest version of Hangzhou’s plan is different from the previous draft in that it raises the property tax rate from 0.4 to 0.8 percent of the purchase price to 0.5 to 1 percent. The 0.5 percent tax would apply to ordinary commercial housing and the 1 percent tax on townhouses and villas. But the new plan still only applies to new homes that are larger than 60 square meters per resident.

“Local governments’ enthusiasm toward property taxes isn’t high,” said a source from the Hangzhou municipal government. “They worry that the negative impact on housing and land prices will outweigh the revenue that’s gained through the tax.”

The source said that Hangzhou’s property tax plan has already been submitted to the relevant state ministries and is expected to be formally introduced after the Third Plenary Session of the 18th Communist Party of China Central Committee.

According to an expert familiar with the issue, one possible reason for the suspension of the last edition of the property tax was that it didn’t impose taxes on existing homes, which goes counter to the policy attitude of the new government.

“Even if you don’t tax too much, you have to hit the existing housing and clearly tell the market that those who own more houses should pay more,” the source said. However, it doesn’t appear the new plan will apply to existing homes either.