Estimation of tax incidence in Beijing housing market

Capital gains tax (CGT) in China charges 20% of the profit from home resale, exempted only if the seller owns only one home and the seller has owned it for more than five years. This work estimates how CGT is shared between seller and buyer. By calculating the price differential between similar CGT-accrued housing units and CGT-exempt housing units and estimating CGT accrued, we find that approximately 50% of CGT is in fact transferred to the buyer. It should be noted that 50% is a lower bound of actual buyer incidence due to data limitations. Appreciating, liquid, quality housing units are associated with higher tax incidence for buyers. To address non-hedonic motives to sell, it is also shown that the price differential between CGT- accrued and CGT-exempt housing units is not a result of demand for liquidity or out of market conditions. This work suggests that regulators should be prudent in utilizing such tax as tools to deter speculation in the housing market.