China's plan for a tax on property takes an unexpected twist thanks to the trade war

Beijing's plan to unveil a nationwide property tax could become a casualty of the escalating US-China trade war, as efforts to push ahead with draft legislation on the new levy appear to be temporarily on hold.

Rising uncertainty in the international environment means that "conditions are not ready" for rolling out a property tax law, Zhang Yiqun, an official with China Law Society, a policy institute under China's Ministry of Finance, told the Securities Daily in a report on Wednesday.

"An imminent fruition of the law also runs counter to the grand policy direction of cutting the tax burden," Zhang told the financial publication, which is affiliated with the Economic Daily, a newspaper under the State Council, or China's cabinet.

China is reducing levies and other payments this year such as the value-added tax, personal income tax and social security contributions amounting to nearly 2 trillion yuan (US$290 billion), in an effort to cushion the economic fallout of the trade war. China's state broadcaster CCTV said on Monday that Beijing will "fight to the end if the US wants to", in response to Washington's move to impose tariffs on US$200 billion worth of goods imported from China.

China is an outlier in that it does not tax real estate holdings, however the central government has been reassessing its policy approach to the sector, the largest store of wealth for Chinese citizens.

The tax is seen as helping tame house prices, while at the same time creating another source of government revenue.

Real estate directly and indirectly accounts for as much as 30 per cent of China's GDP, and more than half of fiscal revenue for local governments.

During the opening legislative session in Beijing in March, lawmakers signalled willingness to move ahead with the tax legislation, sparking a sharp sell-off among listed property developers.

The scare began when Li Zhanshu, the chairman of the National People's Congress Standing Committee said that the legislature would focus its energy on drafting several pieces of law this year, including the legal foundations for a property tax.

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But progress appears to have stalled. There was no mention of the law on the 2019 legislation agenda released by the State Council over the weekend, nor has it appeared in the Finance Ministry's working agenda.

Officials and scholars attending a high-profile seminar discussing the law in Shanghai over the weekend highlighted several obstacles impeding the legislation, including a lack of consensus on some issues. Yu Guangyuan, a senior official with the Budgetary Affair Committee of the NPC, said that a preparation team for the proposed law is conducting research in various localities across the nation, but did not specify when a draft would be presented for initial review before the NPC Standing Committee. An additional second and third round of reviews are needed before the legislation is passed into law.

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Shi Zhengwen, a property tax expert with China University of Political Science and Law, said the trade war was unlikely to derail the law, although the timing could be affected.

"The debate is not about whether to levy a property tax or not, but a matter of time," Shi said. "A lot of factors could swing the specific timing, for example a significant downturn in the property market could delay the schedule."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.