The Policy Adjustment Orientation on the Real Estate Taxation

The Policy Adjustment Orientation on the Real Estate Taxation
----Based on the Study of the Real Estate Tax Burdens
LIU Deying1, 2, QIU Hong2
1. School of Management, Beijing Normal University, P.R.China, 100089
2. Business School, Beijing Wuzi University, P.R.China, 101149
[email protected]
Abstract: Many problems have emerged in the rapid development of real estate industry since 2003 in
which the oversized house-price has become the focus of various social problems and conflicts in China,
however, with the expansion of financial crisis initiated by crisis in subprime lending since the fourth
quarter of 2007, real estate market has entered into another new round rise after transient recession. How
to enhance the healthy development of real estate industry by taxation policy reform is worth discussing.
However, taxation policy adjustment would be dependent on the investigation of the real estate tax
burdens and the analysis of tax effects on housing prices. This paper would probe into appropriate real
estate tax burdens level for healthy development of real estate industry in China and propose that how to
adjust taxation by dissecting tax statistic data.
Keywords: tax burdens, real estate tax, policy adjustment orientation
．Introduction
1
The problem about the real estate tax burdens has been caused extensive attention. Many scholars and
experts put forward their views based on empirical evidence and tax theory. The research can be divided
into two categories. One rests on the stage theoretical investigation in which they think that the main
problems are unfair tax burden, inequality competition, both taxes and fees, duplicate taxes, unscientific
items of taxation, unreasonable taxbase. For instance, Wang Xiaofeng, Xiong Xiaogang and
Chenjie(2006) bring forward basic conditions and implementary plan required for reform of the real
estate taxbase, and give reform recommendation for concrete issues as organization, policy data,
technological measure, talents and legislation. The other mainly introduced the real estate tax system in
other country such as America, Japan, India etc. and give reform proposal. Empirical researches in
China are still at an early stage. Liu Liqiu, Li Kai and Zou Yi(2001) evaluated and analyzed the real
estate tax burdens quantificationally utilizing t-r matrix, then proposed reform countermeasures of the
real estate tax system.
On the basis of existing research achievement, this paper first analyze real estate tax burdens level in
China by using interrelated statistic data, then find the problems in our real estate tax system, at last,
propose that how to adjust taxation by dissecting tax statistic data.
2. The analysis on the real estate tax burdens
According to taxation theories and principles, macro gross tax burden level for an industry generally can
be measured by an ratio that divide the tax revenue by its industry value-added, which reflects its tax
revenue contribution to the industry GDP, and micro tax burden level can be measured by the percentage
of firm’s total taxes to its gross revenue. The paper would derive a conclusion about tax burden level
from an analysis on these ratios.
2.1 The analysis on overall tax burdens level of real estate industry
The overall tax burdens on real estate industry increased from 11.85% in 2002 to 25.14% in 2006 in
China, however, micro gross tax burden only rose by less than 4%. The real estate tax burdens in 2002
was lower by 2% than micro gross tax burden, yet doubled in 2006, which implied that tax burdens on
real estate industry has become higher and higher and the gap between two become higher too.
Average growth rate of real estate revenue and industry GDP was 20% and 15%(calculated by real price)
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respectively in the period of 2002 to 2006, which suggested that the growth of real estate revenue
increased rapidly than that of real estate economy and tax burdens on real estate industry increased.
Based on coefficient of tax elasticity that reflects the coordinating relationship between real estate tax
and economy, real estate tax revenue expressed a rapid increase. Table 1 exhibits that coefficient of tax
elasticity is more than 1.3 except in 2002. As it should be, the change on coefficient of tax elasticity is
not only related with growth of real estate economy, but also influenced to a large degree by tax policy
and imposition supervision power.
Table 1: Statement of total tax burden and tax burden of the real estate
2006
2005
2004
(thousand yuan)
2002
2003
tax revenue on real estate
23843669
17978011
13696359
9404033
6337650
value-added of real estate
94839226
82438350
71741283
61726766
53463537
2108709949
1838678827
1598783379
1358227562
1203326893
17.52
16.48
15.75
14.72
13.82
15.04%
14.91%
16.22%
15.46%
13.39%
21.91
20.33
26.00
20.19
11.55
GDP
Total tax burden(％)
value-added of real estate growth
rate(％)
tax revenue on real estate growth
rate (％)
tax burden of real estate (％)
coefficient of tax elasticity
25.14
21.81
19.09
15.23
11.85
145.66
136.32
160.23
130.65
86.28
2.2 The analysis on tax burdens level among individual industries
Compare with related industries, tax burden on real estate was still higher. Table 2 shows that total tax
burden rate had raised 3.7% from 2002 to 2006, tax burden rate of the secondary industry increased by
7.11%, tax burden rate of the third industry had increased by 5.29% which is 1.5% higher than total tax
burden rate, however, the tax burden rate of the real estate industry in the third industry changed the
most largely and increased by 13.29% which is about 3% more than finance industry.
Table 2: Statement of tax burden rate of related industries
2006
2002
变化
Total tax burden rate
17.52%
13.82%
3.70%
tax burden rate of Primary industry
20.64%
13.53%
7.11%
tax burden rate of Construction
13.85%
10.72%
3.13%
tax burden rate of tertiary industry
18.85%
13.56%
5.29%
tax burden rate of Finance
26.67%
15.70%
10.97%
tax burden rate of real estate
25.14%
11.85%
13.29%
2.3 The analysis on tax burdens level among each links of taxation
Take the real estate as the object of taxation, there are six categories of tax: tax on Real Estate, urban
real estate tax (abolished on January 1, 2009), use of Urban land tax, occupancy of cultivated land tax,
land value added tax and contract tax. But tax types related to the real estate operations and transactions
includes: business tax city maintenance and construction tax enterprises’ income tax income tax on
enterprises with foreign investment and foreign enterprises individual income tax stamp tax and
educational surcharges. Table 3 shows that tax revenue when taking the real estate as the object of
taxation is less than 10% of total tax revenue, while tax revenue related to the real estate operations and
transactions is more than 90% of total tax revenue. It is obvious that real estate tax mainly concentrates
in the links of real estate development and Transactions. Tax burden in the links of owners’ holding is
much lower than that in the links of real estate development and Transactions. For example, individual
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house rental comprehensive percentage charge in Beijing, Tianjin and Chongqing are 5%, and the real
micro tax burden is 5%, but real micro tax burden on enterprise house rental is about 19%. Tax burden
on house properties owned by individual used for non-business purposes is zero. When the real estate
market is a seller's market, real estate enterprises are in a favorable position of the whole industry chain,
consequently; the taxes on real estate development and transaction can be carried forward to house
buyers by increasing house prices or carried backward to construction enterprise by decreasing
construction and installation enterprise’s cost of construction and installation. In fact, real estate
enterprises are not the real bearers of tax. Whereas when the real estate market is buyer’s market, real
estate enterprises would be the real bearers of tax. Based on previous analysis, we can get the following
conclusion: tax burden on the real estate in china is high and burdens distributing are unreasonable. The
condition that tax burden on real estate development and transaction is too high and tax on tenure is too
low is not conducive to the sustainable and healthy development of the real estate industry.
Table 3: Tax burden analysis on the links of real estate
2006
2005
2004
(thousand yuan)
2003
2002
Real estate tax and urban real estate tax(1)
191310
492729
383910
320838
241469
Urban Land Using tax(2)
619736
96672
49033
34804
23522
Land value added tax(3)
1500386
1126093
603265
270274
145042
Tax on contacts (4)
* 1(5)=(1)+(2)+(3)+(4)
75162
85358
102523
69930
56283
2386594
1800852
1138731
695846
466316
*2(6)=(5)/(14)
Business tax (7)
10.01%
10.02%
8.31%
7.40%
7.36%
12843737
9968713
8161531
6174124
4153911
Urban maintenance and development tax(8)
681406
478270
389989
287613
205893
Company income tax (9)
*3(10)
5441543
4264291
2865912
1428812
951736
1423378
895568
737528
484221
341668
Personal income tax (11)
681406
547236
407527
332406
222854
Stamp tax (12)
622414
102977
88989
59578
39553
* （13)＝(7)+(8)+(9)+(10)+(11)+(12)
21693884
16257055
12651476
8766754
5915615
Total tax revenue on real estate (14)
23843669
17978011
13696359
9404033
6337650
4
* (15)＝（13）/（14）
90.98%
90.43%
92.37%
93.22%
93.34%
*1Total tax amounts when take the real estate as the object of taxation
*2Total tax amounts when take the real estate as the object of taxation/tax revenue on real estate
*3Income tax on enterprises with foreign investment and foreign enterprises
*4Total tax amounts related to the real estate operations and transactions
*5Total tax amounts related to the real estate operations and transactions/ Total tax revenue on real estate
5
．The policy adjustment orientation on the real estate taxation
3
Real estate industry is the main pillar of the national economy and of vital importance to the nation's
economy and the people's livelihood. As the basic condition of social material life, real estate is
importance to the subsistence and improvement the standards of living of the common people. The
governments should conduct a policy of reasonably distributing burdens to promote the healthy
development of the real estate and create favorable conditions for building a harmonious society. The
real estate industry subjects to an excessive tax burden under existing taxes and levies system. Taxes and
fees are about 1/3 of the house price and rise above other industries’ average tax burden level. It is
obvious that it doesn’t agree with the state industrial policies and the taxation can not play a more
effective role in regulating the real estate industry, moreover, the severer the regulating, the higher house
price. Unreasonable tax burdens among different links also distort the real estate market. Appreciation in
holding period on real estate tenure will not be distributed the governments and the governments can not
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regulate such behavior of holding lots of real estate as to an appreciation in the value of real estate,
therefore, resources of the real estate will not be allocated optimistically. For this reason, current real
estate tax policy has to be adjusted. The policy adjustment orientation should be straighten out the
relationships between taxes and fees, simplified or combined categories of taxes, decreased tax burdens,
strengthen regulations. Specifically, the measures are as follows:
3.1 Standardize the fees and taxes, Institute distribution system whose mainstay is tax.
March 8, 2008, member of the national committee of CPPCC, the vice-chairman of the Henan
Federation of Industry and Commerce, Wang Chaobin, and other ten members of the national committee
of CPPCC had signed a proposal Cut down Government Charging Items to Control House Price
Increasing. The proposal says that the house developers need to pay over 50 fees to about 25
government departments. The percentage of fees is 15% 20% of total development cost. Fees items
in every province and city in China are between 60 and 150. Excessive fees not only lead to house
cost rising, but also occupy the field that should be regulated by taxation. Typical punitive act tax
such as Tudixianzhifei which is not the expense pay for providing related services weaken the regulation
and control function of real estate tax. Excessive fees also produced more extra-budgetary funds which
can not plan in entirety and supervise effectively. That is why we should construct public finance
framework whose mainstay is tax in accordance with the requirements of the socialist market economic
system. By means of reinforcement tax and standardizing fees, establish distribution system with tax as
the main fiscal revenue and fees as an auxiliary, and by budgeting to arrange government expenditures
comprehensively, establish the financial distribution system. The specific measures are as follows: first,
put in order current charging items, cancel unreasonable and illegal fees; secondly, standard fees
according to established approval procedure. For operating fees, beneficiary can make choice by
themselves based on principle of "benefits, and who pays" ; thirdly, expand tax base by changing fees
with tax nature into taxes to strengthen the capacity for macroscopic regulation and control of taxation.
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3.2 Simplify and conflate items of taxation and strengthen the capacity for macroscopic regulation
and control of taxation.
Currently, there are too many real estate tax items and some items are overlapping, such as contract tax,
business tax, stamp duty, property tax, income tax, city maintenance and construction tax, land use tax,
and so on. For instance, enterprise rent revenue shall be taxed both 5% of the business tax and 14% of
tax on real estate. Duplicate taxation not only makes heavy taxes on the real estate but also increases
difficulties in practical operation. It is difficult to implement 30%~60% excess progressive of tax rate on
land appreciation in practice and tax evasion happened occasionally. Therefore, considering the payers’
actual tax burdens, current tax items should be consolidated and adjusted to build new real estate
taxation system according to the principle of “simplify tax system, expand tax base, lower tax rate,
strengthen collection and management”, as follows:
3.2.1 Reform of taxes and fees related to the real estate operations and transactions
First, combine occupancy of cultivated land tax, Land Use Tax, Land Grant Fee and other fees related to
the land obtained into Land Tax that apply to both foreign and domestic business. It is because that the
rate of occupancy of cultivated land tax and Land Use Tax are so low that they can not exercise their
restraints upon behavior of land speculations. As a kind of charge, Land Grant Fee should be obtained
by auction, public bidding and agreement, however, local governments have intention of exploiting land
to seek rent, which bring out quite different amount land grant fee among similar land parcels. Land
grant fee increases too fast and its uses are non-transparent and lack of standardization, which lead to
"small exchequer" of grass-roots units of rural village and town. It is not conflict for governments to
obtain absolute rent and differential rent by Property Ownership or social management right because
Land property are state-owned in China, the key problem therefore is which way is better from the
standpoint of fairness and efficiency. It is better to bring land revenue in the way of taxation into
financial allocation system which can regulate fiscal revenue to be used in public expenditure, and when
land revenue are not linked to local government benefits, driven factor of increasing land cost can be
eliminated fundamentally and land cost can keep relative stabilization. Meantime, by designing
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scientific and reasonable tax rate, tax burden related to the real estate operations and transactions will be
reduced.
Secondly, cancel land value added tax and stamp tax for real estate. Land Appreciation Tax assessed
according to the appreciation amount derived by the taxpayer on the transfer of real estate and the
related excess progressive of tax rates is a kind of direct tax burdened by real estate companies and
should not be shifted. However, land value added tax is shifted in practice and it raises housing price
virtually instead of playing a role of regulating and controlling real estate market , therefore ,in order
to reduce the tax burden of the link of the real estate operations and transactions, tax related to land
appreciation should be levied annually. Based on holding period. Stamp tax for real estate and contract
tax should be canceled to decrease transaction cost and simplify taxation system because they are both
imposed to behavior of acquiring real estate and exist overlapping.
Take the real estate as the object of taxation, there are six categories of tax: tax on real estate, urban real
estate tax(abolished on January 1,2009),land use tax, occupancy of cultivated land tax, land value added
tax and contract tax. But tax types related to the real estate operations and transactions includes:
business tax city maintenance and construction tax, enterprise income tax income tax on enterprises
with foreign investment and foreign enterprises, individual income tax, stamp tax, and educational
surcharges.
3.2.2 Reform of taxes and fees related to the real estate holdings.
The implementation of the property tax should be actively promoted. The property tax should contain
existing tax on real estate, urban real estate tax (abolished on January 1, 2009), land use tax land use fee
levied on foreign invested enterprises and other related charges. In order to keep down irrational
investment and speculation demands and promote optimum allocation of real estate resources, real
estates of individuals and enterprises for business or rent would be imposed the property tax in
proportional, however, owner-occupier housing(in reasonable space area) would be exempted. Business
tax is not levied on individuals and enterprises, but income tax is still levied on regularly.
In sum, Land Tax, Contract tax, Business tax, city maintenance and construction tax and corporate
income tax should be collected in the link of the real estate operations and transactions; property tax and
corporate income tax or individual income tax, city maintenance and construction tax should be
collected in the link of the real estate holdings.
A tax system of total seven kind of taxes not only has large coverage and would strengthen regulation
and control function, but also lighten the tax burden as a whole and keep sustainable development of the
real estate industry.
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