China To Begin Enforcing Property Gains Tax

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

29 May 2006

It has been reported that China will start to enforce a capital gains tax on property profits in order to help cool the booming market and avert a dangerous real estate bubble.

According to a report in the Hong Kong newspaper Wen Wei Po, China would apply the previously unenforced 20% tax on capital gains from property transactions on houses sold within two years of purchase. Previously the law, which came into force in 1994, applied to sales within five years.

The law would also apply a tax of between 2% and 5% on the full transaction value if the capital gain could not be established.

Initially, the law would be enforced in about 10 major cities, including Beijing and Shenzhen, according to the report.

These cities have seen dramatic increases in property prices recently. In Beijing, prices rose 14.8 percent in the first three months of this year - compared to a year earlier - to 6,885 yuan, or $860, per square meter, according to the city government. Prices in the southern city of Shenzhen have risen by 25%, and prices in the north-eastern city of Dalian have jumped by more than 10 percent, government data showed.

Earlier in the month, Chinese Premier Wen Jiabao stated that the government will continue to adjust tax, credit and land policies to curb speculation and ensure an adequate supply of affordable housing for low and middle income citizens, despite his assertion that China's property market is "under control".

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