A tax bomb goes off
The author is an editorial writer of the JoongAng Ilbo.
To quote the old housewife’s lament, everything has gone up except for paychecks. Taxes under the Moon Jae-in administration have been raised at a dizzy pace. All the categories in the tax code — except for value-added taxes — have been revised upward. The maximum rate on corporate and individual income taxes was raised three years ago. Everything to do with real estate — purchases, ownership and capital gains — has been made more expensive. A tax has been slapped on profits from stocks and even cryptocurrency. Taxes on e-cigarettes will also rise. It is not a coincidence that people are taking to the streets to protest and launch online campaigns against real estate tax hikes. How serious is it? The government has pushed up the maximum corporate tax rate from 22 percent to 25 percent because “rich companies can afford to return more to society.” The government has also lifted the top income tax rate to 42 percent for the rich. When you take into account a 10 percent levy from local governments, their real income tax rate amounts to 46.2 percent. And yet, the government is proposing to raise the maximum income tax rate further to 45 percent. When adding the local tax, the top income bracket is subject to pay 49.4 percent of their annual income as tax. The rate is the world’s highest.
It can be argued that big earners must pay more taxes. But real estate taxes are different. Taxes on real estate affect every citizen. Those without a home now can own one someday. Anyone can trade — or inherit — houses from parents. That’s not all. The government has been raising the registered valuation of properties, which becomes the base for taxation. When the registration values go up, so do taxes on properties.
The government says that real estate valuations must reflect current market prices. But the pace of rises has been drastically fast. The registered value amounting to 60 percent of the market price three years ago has now been quickly yanked up to 80 percent. Due to a spike in the registered evaluations, all the taxes on real estate — for purchases, ownership, multiple ownership and capital gains — went up that much. In its 22nd set of real estate measures announced July 10, the government even raised the rates on acquisition and transfer taxes. If that is not a tax bomb, what is? Korea’s ratio of real estate taxes to gross domestic product (GDP) is the highest among OECD members.
The side effects are alarming. According to the Korea Taxpayers’ Association, taxes collected from real estate deals amounted to 578 trillion won ($485 billion) over the last 20 years. In current value, that is equivalent to 786 trillion won. The tax bombardment is not restricted to the posh districts of Gangnam District in southern Seoul. The ripples will spill over to the entire population. When taxes rise, so do housing prices and rents. Apartment rents in Seoul have risen for the 56th straight week. Real estate markets work the same way as commodities markets. For instance, when oil prices go up, so do fuel and transportation costs.
Yet the government argues it did not raise taxes even when all taxes except for VAT have soared. Anyone who has received a tax bill would feel the difference. Social benefit claims also are on the rise. Health and employment coverage fees have been steadily rising. Retirees with only one home are having more difficulties due to higher taxes than ever before.
Many suspect the government is out to collect more taxes to cover the widening fiscal deficit from its record spending in the face of the Covid-19 crisis. Nearly every citizen who received the Moon Jae-in administration’s universal emergency relief fund used up their share. Few could refuse the free check as they struggled to make ends meet with higher taxes when their incomes have been stagnant or reduced. The fiscal deficit would stretch to 112 trillion won this year alone. Taxpayers dread a tax nightmare if the government is out to dig into their pockets to fill up the widening gap.