A weird tax systemThe ruling Democratic Party (DP) on Friday decided to change the threshold for the comprehensive property tax on single homeowners from 900 million won ($794,000) in appraisal value to the top 2 percent of housing in appraisal value. The threshold for an exemption from capital gains tax on homes goes up to 1.2-billion-won from 900 million won. The proposal is the DP’s remedial action on real estate measures after its crushing defeat in the April 7 by-elections.
As a result, the comprehensive property tax for the rich will be levied on the owner of a single home valued over 1.1 billion won. Under the revision, the number of households subject to the annual levy would be reduced to 284,100 from 525,000. For the capital gains tax, the deduction rate of 40 percent would be applied for 500 million won as in the current law. If the gain exceeds 500 million won, the deduction rate would be differentiated so that the bigger the gain, the smaller the deduction rate.
Lawmakers debated on the proposal for nearly four hours Friday. Due to their heated debate on easing taxes, the proposal had to be put to a vote. Rep. Jin Sung-joon argued that the proposal meant a tax cut for the rich that could undermine the liberal administration’s real estate direction and enrage people without homes. At the end of the day, the outline passed since party chief Song Young-gil pitched hard for the revision for more than a month. The bill is expected to pass the National Assembly since the DP commands a comfortable majority. The law could help one out of four apartment owners avoid facing remarkably increased comprehensive property tax this year.
Still, the idea of singling out the 2 percent home-rich for the levy — which cannot be found anywhere in the world — could trigger controversy about the variants, unpredictability, and risks to taxation security. Since the appreciation rate of apartments would differ by region, the top 2 percent list can change. Even when their home prices fall, the top 2 percent would become subject to heavier taxation. Ranking the appraisal value also could require extra administrative work and cost. Homeowners won’t know if they make the cut until they get the tax bill.
Specifying the top 2 percent can stoke social division. The levy targets the rich, a slogan the DP could use for the next presidential election. Rep. Kim Jin-pyo, head of the DP’s real estate special committee, convinced lawmakers by reminding them that they had lost the Apr. 7 Seoul mayoral by-election by 890,000 votes and the Busan by-election by 430,000 votes and that the DP cannot win the presidential election next March if it loses more than 1 million votes in the two largest cities.