Making tax predictable

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Making tax predictable

A contradicting policy on real estate taxation has been announced. On Wednesday, the government announced a plan to ease the tax burden on single home owners by using last year’s appraisal value for this year’s tax bill, while raising the appraisal value this year.

The move would help cap a further rise in the tax bill for single home owners. But the measure is a once off and unlawful. The move could be aimed to get votes in the June 1 local elections and transferring the burden on the incoming government.

From 2018 to this year, the appraisal value — which the government bases taxation on — of apartments in Seoul have doubled since the Moon Jae-in administration took off in May 2017. Tax burden has increased that much. The government has raised tax revenue through upping property appraisal value, which can be done by the government alone, instead of changing tax rates that require a legislative review and approval. Owners of a single home with no speculative design have also come under tax bombardment. The government has been under fire for dumping a tax load onto taxpayers from spikes in housing prices due to the government’s failed real estate policies.

How the government sets the appraisal value guideline annually is not clear either. Local government heads aligned with the ruling Democratic Party (DP) have also complained. But the government does not disclose on what basis it raised the appraisal value. Tax resistance could pan out this year, too.

Taxpayers are insecure as they cannot know how taxation will change after a new president takes office. The government guidelines far differ from what President-elect Yoon Suk-yeol promised during campaigning. Although campaign promises do not have to be entirely kept, the government should not have rushed with the announcement of the changes.

Yoon pledged to return to 2020 levels for real estate appraisal evaluation. He promised to launch a taskforce to redesign property tax code to reflect affordability for taxpayers. But whether he can implement the changes is uncertain as tax revision requires a legislative endorsement. The DP commanding a supermajority in the National Assembly would hardly cooperate with property tax revision bills proposed by the new government.

Tax must be predictable. If taxpayers cannot predict how much tax they have to pay, the market can be distorted. The government’s policy to tame housing prices through heavy taxes has already caused various ill effects. A reasonable and practical alternative outline must be created based on taxpayers’ abilities and social consensus.
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