China+City+to+Tax+Residential+Real+Estate+-+Sharon

China City to Tax Residential Real Estate Source: http://online.wsj.com/article/SB10001424052748704482704576071682850108262.html Date: January 9, 2011



The government of Chongqing is adding a new tax to the residential real estate in their city by March, and rumors say that Shanghai is planning to follow these steps. The addition of this new tax is for two reasons: to control the rising prices of residential real estates in urban cities, and to create extra revenue for local governments. Statistics show that in 70 of China's large and middle-sized cities, the property price raised 0.5% in September, 0.2% in October, and again 0.3% in November. It has not been confirmed, but it is said that the government will not tax for the houses that is already bought, but only for newly bought houses. Another piece of information that has not been confirmed is that the tax for newly bought will be 1%. Adding a tax of 1% should decrease the supply of residential real estates in Chongqing because of the new tax, which will cause a raise in price and a quantity demanded. This gives the government more revenue, but both the consumers and producers have to pay extra. Not only will the suppliers have to pay extra, they will also gain less revenue than before.

Vocabulary - Tax - mony that gets payed to the government in order to decrease the production, or consumption of a product - Economy - the study of how to allocate limited resources amongst unlimited wants - Supply - the quantity produced of a product - Positive Statement - a statement that can be proven with statistics - Normative Statement - a statement that can't be proven with statistics



I think that this tax is unreasonable because of many reasons. First of all, this will rise the prices of residential real estates even more, which completely overthrows the original plan of controlling the rising prices. This will make it even harder for the middle class to buy residential real estates for themselves. Secondly, this will also decrease the consumption of residential real estate which will not be good for the economy itself. Another reason this is unreasonable is because this will also change the market before March. Because of future expectations of the price of residential real estate rising after March, the demand of this market will rise before March. This will cause an increase in both price and quantity demanded. The addition of this new tax will cause an increase in price for the market both before and after March. The only goal that this new tax will reach is to gain revenue for the government. Therefore I think the government of Chongqing is adding this new tax for their own benefits.