Don’t punish homeownersA presidential commission on fiscal reform on Tuesday proposed raising the maximum rate on the comprehensive real estate tax by 0.5 percentage point and lift its taxable base from the current 80 percent of the government-appraised value of a property by 5 percentage points annually to reach 100 percent by 2022.
The revision to the comprehensive real estate tax — which is imposed by the central government — requires legislative approval. Changes to the taxable portion of property value can be made simply by an administrative act.
If the government follows up on the recommendation — and if the changes reflected in the tax code revision for next year pass the National Assembly — an estimated 346,000 owners of expensive homes and other properties will face larger tax bills next year.
The commission proposed a tougher progressive rate system on property ownership. It cites comparative data from the Organisation for Economic Co-operation and Development (OECD). Korea’s real estate taxes are 0.8 percent of the country’s total gross domestic product, below the OECD average of 1.1 percent.
As a lower tax burden can stoke real estate speculation, it’s important to apply proper taxes to properties. But a tax hike can also make housing more expensive and dampen consumption. Except for select areas, Korea’s real estate market is already stagnant.
If it’s inevitable that property-rich citizens are taxed at a higher rate, the government should lower the tax on trading real estate to keep the market alive. Including acquisition taxes, taxes on trading take up 2 percent of Korea’s GDP, much higher than the OECD average of 0.4 percent. Otherwise, the real estate tax rate hike will spark resistance from residents of certain neighborhoods.
Apartment and residential home prices in the Gangnam area of southern Seoul and some other parts of the city remain strong because demand exceeds supply.
Demand-side policies have never worked as a lasting measure to stabilize home prices. The government must consider increasing supply while taking a close look at tax revisions.
JoongAng Ilbo, July 4, Page 30