[EDITORIALS]Careful on real estate taxes

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[EDITORIALS]Careful on real estate taxes

The administration and the governing party remain far apart over the adoption of a new tax structure for real estate, called the comprehensive real estate system. The two sides, with much difficulty, agreed that the system would be adopted beginning next year. But they have yet to agree on the tax rate and who it will affect. The governing party has put the brakes on the government’s ambitious plans for the new tax structure.
The reason that there is so much controversy over the comprehensive real estate tax bill is that it is unreasonable in many ways. Its foremost problem is the weird two-tier structure of taxation. Under the two-tier structure, a local government would levy and collect property tax, up to a certain value of real estate. Any value exceeding that certain standard value would be subject to central government’s accumulative taxing. Moreover, this tax bill gives the impression that it targets the property-rich, in particular, in Gangnam or southern Seoul, going against the principle of taxation. If the government wants to tax the property-rich to prevent speculation, it can raise tax rates. Thus, it is difficult to fathom why the government would need to create a whole new tax structure.
At the earliest, the government said that they would put out the finalized bill this week. But we want to warn the government for hurriedly pushing ahead with such a controversial bill. The order of things should be that the government should first debate the new tax system’s effects, its down side and its problems, and seek a social consensus before making a decision.
The government should further look into whether there is no other way, than the comprehensive tax system, to prevent real estate speculation and levy heavier burdens on expensive real estate. More importantly, the government should not attempt to use this system as a way to reprimand the rich or as a populism tactic to woo public support. Even when the tax burden is increased, it must minimize resistance to taxation by lowering taxes on acquisitions and transactions.
An increased supply of quality housing is the only way to stop real estate speculation. Heavy taxes and punitive measures may work in the short term, but will inevitably lead to a shrunken housing industry, which will then raise prices. The burden will fall squarely on the shoulders of the lower-income class and eventually on the country’s economy.
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