The Vexing Question of Taxing Property

An interesting read on China here.

Especially since exactly the same issues and conflicts of interest are visible here in Vietnam.

Letter from China - China's Rich Debate Tax on Property

...An annual levy on property would give local officials a reliable stream of revenue, making them less dependent on land auctions that have fueled speculation and helped prices rise 10.7 percent in February from a year ago, the fastest pace in almost two years.

China overtook the United States last year to become the world’s biggest property investment market, according to Cushman & Wakefield, a real estate brokerage based in New York.

Officials in Beijing are constrained by an emerging affluent class with increasing ability to influence policy. Mr. Wang, chairman of the property developer Dalian Wanda; Mr. Lu, 65, chairman of the auto parts maker Wanxiang Group; and Mr. Zong have connections in the highest levels of government. Their company Web sites document meetings with Prime Minister Wen Jiabao and other leaders.

“The ones who have properties are the ones with the power to implement the tax,” Pan Shiyi, 46, chairman of the Beijing-based real estate developer Soho China, said in Hong Kong. “So it’s very unlikely” the tax will become law. He and his wife rank 24th on Forbes’s list.

The executives represent one side of a widening rift within the Communist Party, said Li Cheng, director of research at the Brookings Institution’s John L. Thornton China Center in Washington. It will grow as the country continues to develop, pitting them and businesses in coastal regions against those who want to redistribute more of China’s growing income and develop interior provinces.

“This is what I call one party, two factions,” Mr. Li said.

Blame former President Jiang Zemin. He altered party doctrine in 2002, encouraging private entrepreneurs to join. Now some of the most financially successful members are voicing opposition to government initiatives from within the system.

They echo American Tea Partiers whose rise to prominence was stoked partly by anger over Mr. Obama’s programs to promote growth. Mr. Zong said there was wasteful spending in China’s 4 trillion renminbi, or $586 billion, stimulus plan.

Mr. Wang, 65, sounded like former President Ronald Reagan when he said, “If you really want to provide a boost to employment, don’t raise taxes, cut them.”

“The opposition of the rich is in line with reason,” because they must pay most of the money for the levy, Jia Kang, head of the Finance Ministry’s research institute, said in Beijing. He advocates a system that puts most of the burden on owners of investment homes and luxury villas.

The government should “earnestly investigate and prepare for the property tax to be introduced,” possibly on a pilot basis initially, Mr. Jia said.

A new source of revenue would help curb real estate speculation that has made housing less affordable and threatens to create a bubble that might restrain China’s economy, which expanded 10.7 percent in the fourth quarter.

“It is widely recognized that the current structure of property, which has been a big source of growth, is not sustainable,” said Arthur Kroeber, managing director of Beijing-based Dragonomics, an economics research firm whose clients include hedge funds and Fortune 500 companies.

The Finance Ministry and other government supporters of the tax will eventually prevail, Mr. Kroeber said, overcoming resistance from officials who say it will hurt the value of their own real estate investments.

“They will come to grips with this,” Mr. Kroeber said in an interview. “It will be messy and it will be a drawn-out battle, but I think that it will happen.” ...

What do you think, does this sound familiar Vietnam? Doesn't Hanoi face a similar conflict of interest when it comes to taxing property?