Saturday, November 27

Tax reform plans: China’s top earners should pay more

As of: 25.10.2021 2:12 p.m.

The Chinese state wants to tax top earners more heavily in the future. The introduction of a real estate tax is also being discussed, and experts expect consequences for the economy.

Top earners in China are to be taxed more heavily in the future. The government wants to “share the cake” by sensibly adjusting the incomes of top earners and increasing those of the lower income groups, the official Xinhua news agency reported.

To this end, changes in tax collection are to be intensified in order to increase revenues. This will be done in a targeted manner as part of an effort to achieve “common prosperity” in the long term, it said.

“Common Prosperity”

The aim is therefore an “olive-shaped” distribution structure for incomes with a large middle and two small ends, according to the agency’s report. China’s tax policy should not be misinterpreted as “depriving the rich to help the poor,” said Xinhua. According to its own information, the agency has asked the responsible departments and key people about the plans. As the official news agency of China, Xinhua also acts as a mouthpiece for the political authorities and accordingly disseminates news in the interests of the Chinese Communist Party.

In the past few months, China’s head of state and party leader Xi Jinping has repeatedly spoken out on the subject of “shared prosperity”, most recently in an essay in a party newspaper a few days ago. Xi spoke out in favor of “vigorously and steadily promoting” a wealth tax. This political push is intended to narrow the gap between rich and poor in China.

Real estate tax becomes more likely

The introduction of a real estate tax is also under discussion in China. According to experts, the deepest change in China’s real estate policy in decades could be imminent. At the weekend, a parliamentary body announced that it would introduce such a tax on a trial basis in some regions. “The announcement came earlier than expected and confirms our long-held view that China is determined to transform its real estate market,” said ANZ Research economist Betty Wang.

A pilot project was started in the cities of Shanghai and Chongqing in 2011, but it has not been expanded. “The property tax there only has to pay owners of high-quality and second homes, the tax rate is between 0.4 percent and 1.2 percent per year,” the experts at Commerzbank write in a comment.

The expansion of the property tax to other regions should primarily combat the unequal distribution of wealth, according to the Commerzbank experts.

Brake on the Chinese economy?

The plan comes at a time when the Chinese real estate market is under severe pressure. The Chinese real estate group Evergrande is indebted to the equivalent of around 260 billion euros, market observers fear an insolvency. Other real estate companies are also in trouble.

The property tax is seen as a deterrent to speculative purchases and to cool property prices, which have soared more than 2,000 percent since the property market was privatized in the 1990s. This has made home ownership unaffordable for many Chinese.

For the already ailing real estate sector, the introduction of a real estate tax is bad news, says Commerzbank. “The number of apartment sales has already dropped significantly. The fact that the government is deciding to put a further burden on the real estate sector in this situation shows once again that it does not want to actively support it at the moment.” In view of the great importance of this sector, the economy could be noticeably slowed down, the analysts concluded.

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