On Saturday, October 23, China took an important, albeit small, step toward enacting a nationwide “real estate tax” [房地产税], commonly called “property tax” (we will use these terms interchangeably below). The NPC Standing Committee (NPCSC) adopted a decision authorizing the State Council to carry out property tax pilots in selected, as yet unspecified, regions, for at least five years. Reflecting the ongoing intense debates within the party-state, the decision lacks essential details about the proposed new tax and the pilots, and instead grants the State Council broad authority to design them.
The first official proposal for a real estate tax appeared in the Communist Party’s 2013 Third Plenum decision on “comprehensively deepening reforms.” Since then, the proposal has been listed in the 12th and the 13th NPCSC’s five-year legislative plans, as well as in the legislature’s annual legislative plans for 2015–2018 as a preparatory (i.e., lower-priority) project. An early draft was produced in 2018 and circulated among central and local authorities for comments, according to Caixin, but no further public progress has been made.
After several years of lull, the project seems to have picked up steam again this year. The 14th Five-Year Plan adopted in March vowed to “advance property tax legislation,” as did General Secretary Xi Jinping in an important August speech articulating the concept of “common prosperity,” a program aimed in part to reduce economic inequality. He also added that the legislation and reform of a property tax must proceed “actively yet prudently.” The same language appears in Saturday’s NPCSC authorization.
The upcoming pilots do not appear to be just an expansion of the residential property tax pilots that have been carried out in the metropolises of Chongqing and Shanghai since early 2011. The tax being tested in Chongqing and Shanghai is technically called—for lack of a better translation—the “building tax” [房产税], which is deceptively similar to the real estate tax [房地产税]. The key difference here is “地” (or land), as the building tax being levied in the two cities does not consider the value of the land underneath taxable private residences. But the new property tax likely will: according to the NPCSC authorization, people responsible for paying the real estate tax consist of both homeowners and holders of land use rights (i.e., rights to use state-owned land).
The new pilots would likely also impose annual charges on a much wider range of properties. Shanghai’s trial taxes mostly second homes, while Chongqing’s taxes mostly high-priced ones. The NPCSC’s new authorization states, however, that “all types of real estate” in the pilot regions, whether residential or nonresidential, will be subject to the new tax. The sole exclusion is rural land specifically designated for building homes (called “house sites” [宅基地]) and the homes built on it.
There is not much else known about the new pilots or the new experimental tax so far—not even where the pilots will be conducted. (The Wall Street Journal reports that officials were considering around ten places, including Shenzhen and Hainan Province.) The whole legislative process for the NPCSC’s authorizing decision was shrouded in complete secrecy. There was no indication that it has been placed on the legislature’s agenda until its passage on Saturday. While it is not unusual for an authorizing decision itself to include few details about a new pilot program, legislative records accompanying the decision typically provide more information. Yet the NPCSC so far has released none of such records for its decision on property tax pilots, but has done so for other bills approved on the same day.
According to a comically short interview published by Xinhua, the Ministry of Finance and State Taxation Administration are drafting detailed rules for the pilots. Once they are approved and issued by the State Council, the pilots will officially start, for an initial period of five years. The NPCSC authorization explicitly allows the State Council to request a renewal if it needs more time. Thus, it is possible (or even likely) that a nationwide property tax would not be enacted into law until late 2026 or early 2027 at the earliest—and that is assuming the State Council would be able to finalize the pilot rules in the next few months. Apparently officials are still debating essential issues like tax rates and the availability of exemptions or discounts.
Our translation of the NPCSC’s decision follows. We will cover the other bills approved by the NPCSC on Saturday in a separate post.
Correction (Dec. 23, 2021): A previous version of this post speculated that the NPCSC may have initially reviewed the pilot authorization in October 2020, but newly released legislative records show that the authorization underwent only one review—in October 2021.
Decision of the Standing Committee of the National People’s Congress on Authorizing the State Council to Pilot Property Tax Reforms in Certain Regions
(Adopted at the 31st Session of the Standing Committee of the 13th National People’s Congress on October 23, 2021)
To actively and prudently advance legislation and reforms of the property tax, to guide the rational consumption of housing and the economic and intensive use of land resources, and to promote the stable and healthy development of the real estate market, the 31st Session of the Standing Committee of the 13th National People’s Congress decides: the State Council is authorized to pilot property tax reforms in certain regions.
I. The taxation objects of the property tax in the pilot regions are all types of residential, non-residential, and other real estate, not including lawfully held rural house sites and the residences thereon. Holders of the land use right and owners of buildings are the taxpayers of the property tax. The Interim Regulations of the People’s Republic of China on Building Tax and the Interim Regulations of the People’s Republic of China on Urban Land Use Tax are to continue to be implemented for non-residential real estate.
II. The State Council is to formulate specific measures for the property tax pilots, and the people’s governments in the pilot regions are to formulate specific implementation rules. The State Council and its relevant departments as well as the people’s governments in the pilot regions shall establish scientific and feasible models and procedures for collection administration.
III. The State Council is to determine the pilot regions in accordance with the principles of being active and prudent, and by holistically considering such circumstances as deepening the pilots and enacting uniform legislation, as well as promoting the stable and healthy development of the real estate market; and is to file [the pilot regions] with the Standing Committee of the National People’s Congress for recording.
The period of the pilots authorized by this Decision is five years, starting on the date of issuance of the State Council’s pilot measures. During the pilots, the State Council shall promptly sum up the experience of the pilots, and report to the Standing Committee of the National People’s Congress on the status of the pilots six months before the expiration of the authorization period; where it is necessary to renew the authorization, [the State Council] may put forward relevant opinions, and the Standing Committee of the National People’s Congress is to decide. Where the conditions are ripe, a law is to be promptly formulated.
This Decision takes effect on the date of promulgation, and the State Council is to determine the time for launching implementation of the pilots.
With contribution from Taige Hu