Shanghai may soon restore a land appreciation tax on residential houses after levying the tax on villas last June, market sources said.

"For the past month, some property agents have been speculating that land appreciation tax will soon be levied on condos," a property agent told China Daily.

"We believe it's very possible that Shanghai may restore the imposition of land appreciation tax on residential houses," said the source.

Shanghai began levying the tax on villas on June 1, accounting for 30 to 60 percent of the capital gains from the transfer of property rights or the transaction carried out by a real estate company.

"It was not based on a new policy, but on an old one, which was promulgated more than 10 years ago," said Yin Kunhua, a long-time property expert in Shanghai.

This policy was issued by the central government as early as December 13, 1993, but "didn't get implemented effectively across the country when it was issued," said Yin.

Gains resulting from the sale of property rights or transactions by a real estate company are taxable under this policy, and the tax rate imposed on real appreciation corresponds to the progressive tax rates amounting to a range from the minimum 30 percent to the maximum 60 percent of the real appreciation.

"Many local governments including Shanghai stopped imposing this tax for several reasons including the difficulty of calculating allowable expenses that can be deducted from the sum of profits since the regulation is too general to be adopted," said Yin.

The Shanghai municipal government offered detailed regulations in 2003, 10 years later than the national tax policy.

As the central government started tightening land use on September 5, many experts and insiders predicted that common residential houses those of no more than three bedrooms and of average selling prices will soon be subject to land appreciation tax in Shanghai.

"The central government said clearly in its latest land policy in early September that tax collectors should strengthen the taxation levy and strictly control the range of tax reduction and exemption," said a source familiar with the land policy. "It naturally heralds the future levy of land taxations like land appreciation tax."

(China Daily September 13, 2006)