China will “strengthen adjustments” in tax collection to boost revenue and reform the country’s income distribution, but in a targeted and accurate way, as part of efforts to achieve long-term “common prosperity,” state-run Xinhua news agency said.
China aims to “divide the pie” by “reasonably” adjusting the income of its top-earners and elevating the earnings of lower-income groups, Xinhua wrote in a question-and-answer piece on the Chinese economy.
The idea is to form an “olive-shaped” income distribution structure with a large middle and two small ends, Xinhua reported.
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But China’s taxation policy must not be misinterpreted as “robbing the rich to help the poor,” Xinhua said in the Q&A piece, for which the agency said it had interviewed the “relevant departments” and “authoritative people.”
“Common prosperity” is a policy drive by President Xi Jinping to narrow the gap between rich and poor. In an essay in the Communist Party journal Qiushi, published by Xinhua this month, Xi urged China to “vigorously and steadily advance” legislation for a property tax.
Implementing a property tax will be one of the most profound changes to China’s real estate policies in a generation with far-reaching effects.
Such a tax is seen as deterring speculative purchases and cooling home prices that have surged more than 2,000% since the privatisation of the housing market in the 1990s and created an affordability crisis.
The tax will also pinch relatively well-off owners of multiple homes whose properties have gone untaxed for years.
Real Estate Assets
On Saturday, the top decision-making body of the Chinese parliament said it will roll out a pilot real estate tax in some regions.
“The announcement came sooner than expected, and confirms our long-standing view that China is determined to reshape its property market,” said Betty Wang, senior China economist at ANZ Research.
A tax will raise the cost of holding real estate assets, potentially slowing the rate of investor purchases of existing property projects, pressuring the cash-flow of developers in an already tight financing environment in China.
Shares of real estate firms tumbled more than 3% on Monday, compared with the 0.24% drop in the broader blue-chip CSI300 index.
- Reuters with additional editing by Jim Pollard
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