On 25 May 2010, China’s State Administration of Taxation (SAT) issued another circular to strengthen the collection of land appreciation taxes (LAT). Circular 53 was the second circular issued by the SAT on the subject of LAT within 10 days, following the issuance of Circular 220. Unlike Circular 220, which only clarified certain technical issues, Circular 53 focuses heavily on enforcement measures.
Circular 53 sets minimum provisional rates for levying LAT. With the exception of affordable housing, the provisional levying rate should not be less than 2% in eastern provinces, no less than 1.5% in the central and northeastern provinces, and 1% in the western provinces.
The SAT restated the magnitude of LAT final settlement, obliging local authorities to devise plans on how to implement LAT final settlement and to present their plans to the SAT before the end of June. The SAT accentuated its policy of discouraging local authorities to collect LAT on a deemed basis, which were urged to make efforts to collect LAT on an actual basis.
Compared to other circulars issued by the SAT, the nature of Circular 53 is unprecedented, as it puts forward many requirements on local tax authorities to enhance collection measures. This new tone may be due to the fact that the enforcement of LAT is directed by the State Council for the first time since the introduction of LAT in China. On April 17, 2010, the State Council issued the
Circular on Resolutely Curbing the Housing Prices
in
Some Cities from Rising Too Fast
, commanding the enforcement of LAT in regions with overheating property prices.
As a local tax, LAT is administrated by local authorities. Although local tax authorities are technically answerable to both the SAT and local governments, they are more easily affected by local governments. Because of this, the SAT has had less influence on local tax authorities than local governments. This could explain the weak enforcement of LAT in the past, even with the SAT’s continued efforts to stress enforcement. With a different enforcement strategy coming into play, it is expected that enforcement at the local level will be substantially enhanced. Property developers should prepare for stricter enforcement efforts.