As President Lee Jae-myung has repeatedly stressed an "owner-occupant centered" taxation principle for property taxes, the government is reviewing a tax overhaul spanning all stages of home acquisition, ownership and transfer. The plan moves away from the existing approach of amending individual tax items and instead aims to redesign the entire taxation system based on a taxpayer's total tax burden. But some voices warn that the property tax code, already a patchwork after repeated stopgap revisions, could become even more complex.
"Property taxes cannot be viewed solely through holding taxes; we must examine a taxpayer's entire effective tax rate, including capital gains tax and acquisition tax," an official at the Ministry of Economy and Finance said Sunday. "We are preparing a tax revision bill that comprehensively considers the effects of each policy instrument." The aim is to redesign the taxation structure using the "total tax burden" a taxpayer carries from buying a home until selling it as the yardstick, rather than tweaking individual tax items, while also reflecting whether one owns multiple homes, whether one actually resides there, and trading behavior.
In line with the owner-occupant principle the president has repeatedly emphasized, the overhaul is expected to be designed to favor owner-occupants while strengthening taxation on multi-home ownership and short-term holding for speculative purposes. The reform of the capital gains tax long-term holding special deduction is prominently mentioned as one example. Currently, a single-home household can deduct up to 40 percent each based on holding period and residency period, for a combined maximum of 80 percent of capital gains. The government is examining a plan to reduce the deduction granted for mere holding while increasing the share of benefits for actual residency periods, thereby strengthening tax differentiation.
For the holding tax overhaul, the government is reviewing matters that require parliamentary legislation as well as those that can be handled through government enforcement decrees, keeping all options open. Alongside legal amendments such as subdividing the tax base brackets of property tax and the comprehensive real estate tax or raising nominal tax rates, raising the fair market value ratio, which the government can adjust independently, is also being floated as a card. Raising this ratio, currently at 60 percent, would have the effect of increasing the tax base without touching nominal rates.
"The fair market value ratio is effectively a tax rate; only the word 'rate' isn't used, but when the number changes, the tax amount changes," said Oh Moon-sung, a professor of tax accounting at Hanyang Women's University. "There needs to be discussion on whether it is even appropriate to leave it to be determined by presidential decree."
The acquisition tax is also included in the total tax burden calculation and being reviewed together. However, unlike holding taxes, the acquisition tax, a transaction tax, is expected to possibly move in the direction of easing. This is to raise holding taxes to encourage multi-home owners to put properties on the market, while lowering the acquisition tax burden to ease the lock-up of listings.
At his first-anniversary press conference Saturday, President Lee also pointed out that "Korea's holding taxes are generally low," adding, "Because there is little burden even if you buy up many homes, people pile up houses for speculation." This is interpreted as reflecting a plan to redesign the tax structure in a direction that raises the burden of holding while invigorating transactions.
The government plans to prepare a draft outlining the basic direction of the tax revision bill late this month, based on the interim results of a research study for rationalizing property taxes.
Experts, however, are skeptical about the effectiveness of the overhaul. "The Moon Jae-in government already proved that property cannot be curbed through tax policy alone," Oh said. "The worst-case scenario is that the taxpayer burden only increases while home prices are not brought under control." He added, "If listings disappear and even owner-occupants cannot move in and live there, it will inevitably lead to a turn in public sentiment."
Structural limitations are also pointed out. With the underlying legislation and jurisdictional ministries differing for each tax item, and with no domestic precedent for such an attempt, the adjustment process is expected not to be smooth. The acquisition tax and property tax fall under the jurisdiction of the Ministry of the Interior and Safety and local governments, while the comprehensive real estate tax and capital gains tax are under the Ministry of Economy and Finance. "Every time there is a tax overhaul, the tax code only becomes more complex," a real estate industry official said. "The reality is that actual end-users find it hard to even gauge how much tax they will pay when they buy and sell a home."
