Land transfer fees soar in multiple provinces; the addiction to land finance proves hard to kick

　　Land transfer fees in multiple provinces far outpace tax revenue growth

　　The dependence on land finance is feared to be impossible to quit

As local governments successively publish their reports on the 2013 budget execution and 2014 budget drafts (hereinafter referred to as the Reports), the closely watched 2013 revenue from the transfer of state-owned land use rights, namely land transfer fee data, has come to light. A reporter from the Economic Information Daily reviewed the reports and found that in 2013 land transfer fees in many provinces (municipalities) grew rapidly, far exceeding the budgets set at the beginning of the year and leaving tax revenue growth far behind.

In 2013, Jiangxi Province's revenue from the transfer of state-owned land use rights reached 121.07 billion yuan, up 74.8%. The Report said this was mainly due to an increase in the area of land transferred and a relatively large increase in revenue from land transfer payments. By comparison, Jiangxi Province's tax revenue growth was much weaker. Jiangxi Province's 2013 tax revenue was 117.77 billion yuan, up 20.4%. Both the absolute figure and the growth rate were lower than tax revenue—in fact, the growth rate was far below the rapid 74.8% growth in land transfer revenue.

Jiangxi Province is by no means an isolated case. Beijing's 2013 revenue from the transfer of state-owned land use rights was 59.28 billion yuan, up 47.8% from 40.11 billion yuan in 2012. Calculations show that Beijing's tax revenue grew only 12.4% year on year in 2013, far below the 47.8% increase in land transfer revenue.

In addition, in 2013 Jilin Province's revenue from the transfer of state-owned land use rights was 48.97 billion yuan, completing 128.8% of the budget and growing 33.6%. In 2013 Tianjin's municipal-level land transfer revenue was 30.3 billion yuan, up 56.6%. In both provinces, tax revenue growth was far below land transfer revenue growth.

Some other provinces' budget reports did not disclose specific land transfer revenue, but local land transfer revenue accounts for the vast majority of government fund revenue, so an approximate judgment can be made from government fund revenue. Take Zhejiang as an example. In 2013, Zhejiang Province's government fund budget revenue execution figure was 444.064 billion yuan, completing 170.3% of the budget and growing 71.9%. The Report noted that the relatively large increase in government fund revenue was mainly due to an active real estate market and a relatively large increase in land transfer revenue. It can thus be judged that the increase in land transfer revenue was not small. Meanwhile, Zhejiang Province's 2013 tax revenue was 354.566 billion yuan, up only 9.8%.

Along with the surge in land transfer fee revenue, local tax revenue growth is facing a severe test.

On August 1, 2013, the pilot program of replacing business tax with value-added tax (VAT) in the transportation industry and some modern service industries was extended nationwide. The reform reduced the tax burden on enterprises by about 140 billion yuan in total. In individual provinces, growth in business tax, the main local tax category, declined somewhat. Beijing's 2013 business tax revenue was 53.35 billion yuan, down 9.6%. Guangdong Province's business tax revenue was 163.565 billion yuan, up only 5.07%.

Bai Jingming, deputy director of the Research Institute for Fiscal Science under the Ministry of Finance, told the Economic Information Daily reporter, "As railway transport and postal services are included in the business tax-to-VAT reform in 2014, there will be certain tax reduction factors, which will have a small impact on local business tax revenue in 2014."

Heilongjiang's 2014 provincial-level public finance budget revenue is projected at 31.21 billion yuan, down 1.4%. Of this, VAT is 7.05 billion yuan, up 2.5%; business tax is 7.32 billion yuan, down 2.5%. Shaanxi's 2014 provincial-level local fiscal revenue arrangements show business tax at 18.79 billion yuan, up 5.2%. The Report explained that due to the impact of the business tax-to-VAT policy, business tax growth was relatively low. Shanghai's 2014 municipal-level budget arrangements for major revenue items show business tax at 49.8 billion yuan, up 6.8%. The Report said that the accelerated development of the Shanghai Pilot Free Trade Zone and the international financial center is driving business tax growth in related industries. However, in 2014 the state will continue to expand the pilot scope of the business tax-to-VAT reform, which will correspondingly reduce some business tax revenue.

An official from a provincial finance department told the Economic Information Daily reporter that local provinces face many challenges in economic development. Implementing structural tax reductions, canceling some administrative and institutional fees, and especially further expanding the scope of the business tax-to-VAT reform will cause fiscal revenue to maintain a relatively low growth rate. "Because China is now in a period of structural tax reduction, tax growth in 2014 will not be high and should be relatively stable," Bai Jingming told the reporter. Bai Jingming also pointed out that industries such as construction and finance contribute greatly to business tax. When the business tax-to-VAT reform expands to all industries in 2015, local tax sources will face extremely severe challenges. It is thus clear that localities seeking large tax revenue increases seem to be "willing but unable."

Wang Yongjun, dean of the Research Institute of Finance and Economics at the Central University of Finance and Economics, told the Economic Information Daily reporter, "When economic growth slows, local governments become more dependent on land transfer fees. If local governments want to break their dependence on 'land finance,' it should require a process." Local governments' "addiction" to land finance is feared to be impossible to quit. Statistics released recently by the Ministry of Land and Resources for 2013 show that last year's total national land transfer revenue reached 4.1 trillion yuan, setting a new record high.

However, many provinces' 2014 budget reports plan to lower land transfer revenue. For example, in 2014 Shaanxi Province's government fund revenue budget is set to decline 10.9%, which it said was mainly due to a budgeted decline in land transfer revenue in some urban districts in 2014. In 2014 Liaoning Province's budget for revenue from the transfer of state-owned land use rights is 182.41 billion yuan, down 8.3%. Beijing also proposed that its 2014 planned revenue from the transfer of state-owned land use rights be 78.8% of the 2013 execution figure.

"From the perspective of patterns, land transfer revenue is mostly volatile. Generally, if there is an outburst in the previous year, the next year will not be too high, so it is normal for localities to lower their 2014 budgets," Bai Jingming said. "Of course, budget formulation sometimes cannot keep up with market changes. A lower budget does not mean land transfer revenue will actually decline."

It is worth noting that Beijing's 2013 revenue from the transfer of state-owned land use rights was 59.28 billion yuan, completing 238.7% of the budget. Shanghai's 2013 municipal-level revenue from the transfer of state-owned land use rights was 79.32 billion yuan, completing 247.9% of the budget. These data show that year-end execution figures can completely "overturn" some "wishful" beginning-of-year budgets.