Individuals selling residential properties within two years of purchase would now be subject to a VAT rate of 3 per cent, down from 5 per cent, according to a joint statement released on Tuesday by the Ministry of Finance and the State Taxation Administration. Sellers who held their homes for two years or longer would continue to be exempt from VAT, the statement said.
Since residential property prices in China are generally quoted inclusive of tax, homeowners can deduct the tax amount before calculating VAT. For example, a residential property sold for 5 million yuan (US$715,000) with a holding period of less than two years previously incurred VAT of 238,000 yuan. Under the new rules, the tax burden drops to 145,600 yuan, cutting costs for the seller by 92,400 yuan.
“VAT is a seller-borne tax, and the new policy can effectively reduce sellers’ costs, helping to repair the transaction chain to a certain extent,” said Yuan Hao, chief analyst for real estate at SWS Research, a Shanghai-based equity research and consulting firm. “However, given the current weak market, the policy doesn’t lower costs for buyers.”
