Get it right on real estate taxesMinister of Land, Infrastructure and Transport Suh Seoung-hwan said the government is considering a revision to real estate taxation to decrease the transaction tax and increase property rates. The government hopes that lowering the transaction tax will help energize the real estate market and that higher property rates will generate more tax revenue. The country’s real estate tax code has become irrelevant and distorted due to frequent policy changes under different governments and market conditions. Property taxes have been instrumental in government policies toward both overheating and slumping markets. The government has used the transaction tax to help stabile the real estate business while keeping the property tax intact.
In particular, the 4 percent base rate of the transaction tax has not been maintained since 2005 because the tax was frequently used to stimulate property sales. Authorities allowed exemptions of 50 percent to 75 percent in the transaction tax in 2006 to spur the market and they have been in place ever since.
Suh said the tax code would be revised in order to normalize the real estate tax system. We have kept saying that easing taxes for acquisition while raising those of homeowners is proper direction for policy. But it remains unclear whether the government can unite behind the proposed changes. Suh said the ministry will discuss the matter with the Ministry of Strategy and Finance and the Ministry of Security and Public Administration in July and August. The plan so far has been restricted to the Ministry of Land.
Along with transaction and property rates, other areas of real estate taxation, such as transfer income tax and consolidated tax, also should be revisited. The excessive transfer income tax that has served to rein in speculation should be lowered in view of sluggish market demand and the punitive taxes on the rich - consolidated taxes levied on owners of multiple properties - scrapped. The government should operate under a guideline that real estate taxes do not serve as a part of economic stimuli means or target a certain income class.