China Reinstates Home Sales Tax To Counter Price Bubble

by Mary Swire, Tax-News.com, Hong Kong

11 December 2009

China has reinstated a sales tax on homes sold within five years of purchase in order to control speculative activities in its urban real estate sector. A tax break on car purchases has also been reduced, as the Chinese economy shows strong signs of revival.

In January 2009 when prices were falling and the economic crisis was at its bleakest point, the penalty period of the tax was reduced from five years to two years.

According to the China Daily, A record USD1.3 trillion of bank lending in the past 11 months has helped revive Chinese economic growth to an annualized 8.9% in the third quarter. A government survey showed that home prices in 70 major Chinese cities had risen about 4% year on year in November, their fastest pace in 16 months.

In addition, preferential tax rates on vehicle purchases for engine capacities of 1.6 liters or less will be reduced. The sales tax was cut from 10% to 5% in January but is due for a hike to 7.5% in 2010.

Nevertheless incentives for alternative energy and energy efficient cars, trading in older cars and vehicle purchases in rural areas will be maintained, in keeping with plans for slow and gradual removal of fiscal stimulus measures. The incentives package helped stimulate a 42% revival in nationwide vehicle sales to 12.2 million in the year to November.

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