Putting ideology asideThe government has drafted an outline to rationalize property tax codes. The outline released by the Fiscal Reform Special Commission under the Presidential Commission on Policy Planning proposes four options to raise the property holding tax rate. One is to reflect 100 percent of the assessed property value in determining the levy through incremental increases from the current 80 percent ratio over the next two years; two, to increase the comprehensive tax rate base; three, to raise both the reflection rate and base of the property tax rate; and four, to differentiate levies for single and multi-homeowners. The outline will be finalized next week to be submitted to the government for approval.
In Korea, landlords owning properties beyond a certain threshold are liable to the comprehensive real estate holding tax. The tax is levied from 0.5 percent to 2 percent for each residence exceeding the value of 600 million won ($539,326) or 900 million won in the case of a single property.
In whatever scenario, tax burdens on property owners are bound to go up. If the ratio of reflecting valuation of a property and the base rate go up at the same time, owners of multiple homes could see their tax bills soar by up to 37.7 percent. These levies on as many as 348,000 people could add tax revenue of 1.3 trillion won a year.
The government must balance rationalization in property tax by lowering the transaction tax and raising the ownership tax. When raising ownership tax rates, the government must lower taxes on buyers’ acquisition and registration for homes while lowering sellers’ transfer tax at the same time to reduce their resistance to tax increases. But the current outline only proposes raising the comprehensive property holding tax and defers changes to the overall property and acquisition levies.
The government must be more thorough in drawing up tax code revisions for next year after studying the movements in home values, market conditions and other taxation. Most of all it must not use the property tax code to clamp down on speculative investments or punish the rich. If it oversteps, it could repeat the mistakes of the past progressive government of President Roh Moo-hyun, whose real estate clampdown through taxes triggered a depression in the property market and a plunge in home values.
JoongAng Sunday, June 23-24, Page 34