Tax deductions on rent represent the general trend
CGTN's Yang Chuchu
Editor's note: The article is based on interviews with Weng Wuyao, director of Institute for Research of Fiscal (Tax) and Financial Laws, China University of Political Science and Law (CUPL), and Zhu Zheng, an assistant professor at the Law School with CUPL. The article reflects the experts' opinions, and not necessarily the views of CGTN.
The new Chinese tax law, which took effect on January 1 and expands deductions from taxable incomes for housing rents, has raised worries among tenants who fear it may translate to higher rents.
According to the new individual tax law, deductions of 800 yuan (118 U.S. dollars), 1,100 yuan (162 U.S. dollars) or 1,500 yuan (222 U.S. dollars) per month will be granted to taxpayers owning no housing in the city where they work.
It has been seen that the central government making efforts to promote individual tax reform to alleviate citizens' economic pressure and encourage consumption upgrades.
Cheng Lihua, vice finance minister of China, said that raising the minimum threshold for personal income tax and introducing special expense deductions into the individual income tax system will significantly reduce taxes for the public and increase their incomes. She said that, "It will encourage people to expand their demand for consumption and therefore drive economic growth."
Weng Wuyao, director of Institute for Research of Fiscal (Tax) and Financial Laws, China University of Political Science and Law (CUPL), goes along with these views. Besides, Weng said that the new individual tax law can guarantee citizens' rights to living and habitation, and promote the normalization and legislation of rental market taxation.
However, the new law has raised concerns among landlords. Tenants applying for deductions on rents will need to submit information about apartments and landlords to related authorities, which will expose landlords' renting income and thereby accompanying taxes on landlords including value-added tax, property tax and personal income tax, etc.
With the possible rising tax obligations, it is reported that some landlords have refused to offer their renting information to tenants and even said they would increase rents if tenants apply for tax deductions.
The reason behind this issue, according to Zhu Zheng, an assistant professor at the Law School with CUPL, is the immaturity of China's rental market. It reflects that housing supplies fall short of demand, thus allowing landlords to exploit their tenants and, as most of leasehold relations are in a grey zone, landlords can raise rents at will, Zhu added.
By dealing with this confrontation, China can gain some insights from the international community.
For example, in France, the Loi Pinel - the law on the real estate market - concerns tax cuts for individuals who opt for rental investment. It has offered three privileges for people who rent their houses: 12 percent of the total amount of the investment for a lease of six years, 18 percent for nine years, and 21 percent for 12 years. And the limitation is that the total amount of the real estate investment must not exceed 300,000 euros (344,000 U.S. dollars) or drop under 5,500 euros (6,300 U.S. dollars) per square meter.
China can learn from France by giving tax preference to landlords who rent their houses, Weng said, for the sake of prohibiting the falling number of houses in rental market and rising rents. On one hand, some tax preference on value-added, property and personal income taxes should be given to landlords. On the other hand, for landlords who did not pay taxes for the past renting income, related authorities ought to help them for self-examination and correction, and not to be held accountable for the past.
Tax deduction is a right for tenants. However, it is believed many will not apply for deductions because of a fear of rising rents.
However, in the long term, landlords should pay taxes on renting income, which is in line with equitability of tax. Incorporating rent income into taxation is a necessary step for perfecting tax system, and an important step in law enforcement since qualified individuals can apply for rental tax cuts while the corresponding tax can be exempt. Taking tax deductions on rent represents the general trend in China, and also in the international community.
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