China's New Income Tax Rebate for Renters Strikes Fear Into Landlords
Chen Yikan
/SOURCE : yicai
China's New Income Tax Rebate for Renters Strikes Fear Into Landlords

(Yicai Global) Jan. 7 -- China's new income tax regime, which allows renters to receive a monthly rebate of up to CNY1,500 (USD218), has sent the country's landlords into a panic over their own unpaid taxes.

The scheme requires homeowners to provide their official details including identification numbers and specific addresses, which could land tax evaders in hot water with authorities as they will no longer be able to hide certain non-salary income streams such as rental payments.

China aims to ease the tax burden on low and medium-level income citizens through the new system. Renters are able to apply for the exclusive additional rebate on a monthly basis.

Some landlords have even threatened to raise their rent if they apply for the rebate as part of efforts to avoid the attention of tax inspectors. Many renters expressed their concerns to Yicai Global over the possibility though actual cases of the practice are yet to emerge.

According to new regulations, landlords should pay taxes on their income earned through renting out their houses. However, local authorities seldom levy taxes strictly on them due to the decentralized nature of the system, the paltry sums involved, a lack of transparency and limited manpower. The proportion of house owners who voluntarily pay taxes after renting out their properties is also low.

As tenants take up the government's offer of income tax rebates, this situation may change, however. Authorities have called on local tax administrations to draw up transitional policies as soon as possible, such as income tax exemption for those whose rent falls within a certain range.

The plan is aimed at reducing risks for both the taxpayers and leviers, Shi Zhengwen, director of the Center for Research in Fiscal and Tax Law at China University of Political Science and Law, told Yicai Global, adding that it will stabilize market expectations related to the government's efforts to cut taxes and lower fees.

Although the individuals should pay taxes for their earnings by lending their properties out according to the current laws, the actual amount paid is very little, Shi continued.

Regulators have not had the time or resources to investigate tax evaders properly in the past, Shi said, adding that the new scheme will provide more transparency as the official details of landlords are submitted. Some local administrations may also strengthen relevant regulations and taxation if there are no new specified supporting policies on a national level, he added.

"With the risks surrounding tax payment becoming larger, some landlords that are sensitive to such a situation may require that tenants do not apply for the rebate, or both parties could negotiate rent hikes after legally paying the taxes," Shi said. "These practices will probably lead to the taxpayers giving up this preferential policy eventually."

Authorities are yet to release any official notice on bolstering regulation and taxation on house rent incomes currently, an insider said, adding that citizens should fulfill their obligations in terms of paying tax.

"The government should carry out reform of the country's property tax system in the long run," Shi advised. "It should set up an improved institution for real estate tax and work on setting a basic rebate for rent income earned from lending individually-owned properties while exempting most individual leasers from paying taxes."

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Keywords: New Tax Policy , Income Tax Rebate