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China Tightens Land Tax Collection
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China will start to collect a land tax, which has been suspended for over a decade, from real estate developers in the central government's latest effort to cool the country's property market.

The State Administration of Taxation said on its website on Tuesday that it would begin to formally levy the value-added tax on land - 30 to 60 percent of developers' net gain from a property deal - from February 1.

The value-added tax on land was written into a national regulation in 1993, but was not widely collected due to a subsequent recession in the real estate sector.

With China's real estate investment surging and house prices rocketing, the tax was resumed for the first time in Shenzhen at the end of last year.

At present, some regions in China are collecting the tax at a rate of 1 to 2 percent of advance sales of newly developed houses, while other areas have yet to start collection.

The new policy shows that the government clearly requires the levying of the tax and will continue its macro-control over the real estate sector this year, analysts say.

The administration said the tax will be collected as soon as a single development project is finished or transferred.

"With the reintroduction of the value-added tax on land, the property sector will rank among the industries with the heaviest tax burdens in China, and falling profits will dampen future investment in the sector, the Oriental Morning Post quoted an unidentified developer in Shanghai as saying.

"Some developers may suffer great pressure once the tax is formally collected," Xiao Li, secretary of board of the Shenzhen-based developer China Vanke Co., Ltd., told the Shanghai-based newspaper.

"Vanke had set aside 300 million yuan (US$37.5 million) by 2006 in preparation for the reintroduction of the tax, " said Xiao.

In 2006, the price of newly-built commercial houses in many Chinese cities saw a year-on-year hike of more than 10 percent, despite government policies aimed at stabilizing housing prices.

The investment in China's real estate sector surged 24 percent year-on-year in the first 11 months of 2006, three percent higher than that of the first quarter.

(Xinhua News Agency January 18, 2007)

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