China’s property tax plans good for local government finances, says Fitch

14 Aug 15

Credit rating agency Fitch has said the introduction of a nationwide residential property tax in China would provide more “stable, sustainable and diversified revenues” for local governments.

Growth in the country is expected to fall to a range between 6% and 7% this year because of declining land sales, which China’s local government finances are heavily reliant on.

This turn in the economy has prompted the introduction of pilot projects to tax wealthier residents and owners of multiple homes in Shanghai and higher-end homes in Chongqing.

But the move is expected to take time to be implemented and the positive impact on local government finances would only be realised over the medium to long term, the agency added.

“There is no specific timeline as yet for whether or when the pilot programmes will be expanded, but legislation will be required to expand the tax nationwide. As such, discussion within the five-year [legislative] plan is an important first step to enacting the tax,” Fitch said.

“Residential property taxes would be a significant and transformational reform for local governments. At the core, it would provide more sustainable finances and diversify tax sources. Residential property taxes would reduce local governments' reliance on land sales which have hitherto been a key source of revenue.”

However, Fitch said China lacked a nationwide residential registration database, which could present challenges in enforcing the new property taxes.

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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