Corporate Tax in China

Property taxes in China are a popular topic of discussion in the Chinese press. Xinhua News on January 15 stated that property taxation, seen as a silver bullet to curb excessive growth in China's housing prices, is causing much debate within the higher echelon of Beijing's economic planners. A controversial figure in Beijing, nicknamed "Big Mouth Ren" by the local press, stated that only when supply and demand are in balance can property taxes really be effective in curbing speculative home purchases. Property taxes will never curb speculation in home purchases - if they are only a one-off situation. As a January 19 article in Shanghai Daily indicated, they will do nothing to satisfy the instinct of a culture hellbent on gambling.
Property taxation, based on legitimate appraisal valuation, is sorely needed as a means of financing those municipalities of the country where there is no more land left to sell. As a deterrent to spiraling housing prices, the property tax concepts introduced thus far for Chongqing and Shanghai are utterly worthless. There are bubbles in China that are now going down to fourth- and fifth-tier cities. Prices are too high in the highest tiers of cities of China. China has more than 250 cities with populations over 1 million people, so the lower-echelon municipalities are all subject to that gambling urge just like their upper-echelon neighbors. To deflate the bubbles is obviously the goal. This is causing the research departments of the State Council some real concern. China Daily, in a January 24 article, stated that the central government will soon expand the property tax and home buying limitations (based on size of dwelling and the number of dwellings owned by families) to Qingdao City, Tianjin, Shenzhen, Hangzhou, Ningbo, Nanjing, Xiamen, and Fuzhou. Bubbles are already appearing in these locations.
Every year, 10 million to 15 million rural residents migrate to cities of China. The central government believes that as many as 400 million rural dwellers will become city residents over the next two decades. Based on what I have seen in two decades living in China, I don't think this projection is far-fetched.
A one-time tax will temporarily deter speculative activity, but will not have a long-term effect. A shortterm capital gains tax of substance would have an impact, but I don't see that happening. The bureaucracy is simply not set up to handle the tasks necessary for either a true property tax or a capital gains tax.
The same day the property tax went into effect in Shanghai and Chongqing, a new rule requiring a 60 percent down payment on all second home purchases - anywhere in China - also took effect. I doubt it will be a deterrent. Inflation is so rampant that keeping savings in a bank in China means you will lose money. Second homes, based on purchase price, will now require a one-time tax (seems like an excise tax to me) of anywhere between 0.4 to 1.2 percent of purchase price. What's to prevent bogus purchase contracts on cashonly deals? Chongqing will allow nonlocal residents to buy there - so much for curbing outside investment to keep prices down. Taxes in Chongqing will be staggered. They will be set at 0.5 percent if homes are valued at two to three times average housing prices. Homes valued at three to four times average housing prices will be taxed at 1 percent while anything higher will fall under a 1.2 percent tax.
In Shanghai, second home buyers will pay a tax of 0.6 percent unless homes are valued at less than double the average housing price. In that case, buyers will pay only 0.4 percent.
It looks like much about nothing. This also has another effect: lots of yuan renminbi making their way outside China and affecting the economies (and housing prices) elsewhere.