by Yating Xu, Economist, IHS Global Insight
Key Points:
- China willreplace the business tax in all industries with value-added tax (VAT) by May, with detailed plan to be announced later this month, according to the State Administration of Taxation (SAT).
- The VAT reform will be extended to construction, real estate, finance and consumer services, influencing at least 10 million or 80% of related taxpayers.
- Moreover, it is the first time for an individual to pay VAT, including second home sellers,who should currently pay a business tax for selling a house after keeping it less than two years.
IHS Global Insight Views:
As a major fiscal stimulus in 2016, the VAT reform will reduce the tax burden onall industries, according to the SAT, while an essential effect on the real estate industry, particularly in the tier-one cities, is uncertain. Recently, China’s central government and tier-one city authorities emphasized to implement differential tax policies and home purchase curbs in tier-one cities to control housing price hikes, indicating more strict housing market controls after the National People Congress and the Chinese Political Consultative Conference later this month.
However, the VAT reform is likely to boost the non-residential property market, helping reducing the inventories, since enterprises may purchase property to take advantage of the VAT reduction. IHS believes that the inventory pressure is much greater in China’s non-residential market, which requires 15 years to digest at the current sales pace, compared to 4.5 years in the residential market.