Property tax is a very important category of taxation, which does not yet exist in China.

Without such a tax, it is difficult for the State to adjust social and economic relations and the local governments receive less financial resources. Therefore it seems reasonable that a property tax be introduced.

The property tax now in government discussion is called wuye shui tax on real eastate. Many think it should be called caichan shui property tax, according to its more universal meaning. Wuye shui easily leads people to think that it is a tax only on housing or that its purpose is to adjust housing prices.

It would be totally wrong if the government had wanted to adjust housing prices by introducing this tax because it would not help to realize this goal.

To establish a property tax at a rational rate will help promote social fairness and save economic resources. Rich families have more property so get more service from society. For example, the rich benefit more from social stability and a low crime rate.

Poor people also need social stability and a good environment but they gain less financial benefit from these. Therefore it is only right for the rich to pay a greater property tax. The concept of the rich being more heavily taxed than the poor should be popularly accepted.

Not only should there be a rational tax rate for the property tax, but there should be a rational starting point for taxation. A low tax rate may not cover the cost of taxation nor play a positive function, while a very high tax rate may affect economic vitality.

Property tax should be collected not only on housing but also on land. Taxpayers should not only be families but also profit-earning organizations. The property tax should include all kinds of taxpayers to avoid evasion.

For example, property tax can be collected to cool down individual housing speculation. But if enterprises are not taxed, individuals could transfer their personal properties to companies to evade taxation.

It is said that families would be taxed according to the floor area of their homes. This has aroused much criticism. The floor area of many rural homes is much bigger than those of urban residents and a 100-square-meter home outside the Fifth Ring Road in Beijing costs less than a 30-square-meter one in the downtown area. Should rural residents pay more? Should the owners of bigger houses pay more tax?

From the angle of resource conservation, it is necessary to collect property tax on land. At present there is only the land use right transfer fee, no property tax.

To impose property taxes on land will increase the cost of accumulating land and help curb land speculation. But according to our current economic system, there is no basis for collecting property tax on land because rural land is collectively owned and urban land belongs to the State.

This seems to be a predicament, which indeed shows the defect in our land system. So, in my opinion, it is essential to reform the land system before introducing the property tax.

Once the taxable holdings include factory buildings and land, it would be even more ridiculous to tax only according to the area.

Then there is the question of how to measure property values. The self-reporting method adopted by many Western countries is a good one. Enterprises normally would not underreport their property value because there are related mortgage loan issues.

Families would not underreport the value of their property because of the possibility of government buy-outs. Should the government need to demolish their homes, they would not want to be paid an undervalued price.

The author is a researcher with the Rural Development Institute at the Chinese Academy of Social Sciences

(China Daily 03/14/2007 page9)