Korea's property tax burden relative to gross domestic product (GDP) is roughly double the global average, according to an analysis by the Organization for Economic Cooperation and Development (OECD). The OECD recommended that Korea shift its property tax system from a transaction-tax-oriented approach to one centered on holding taxes, while noting that careful design is needed given the unique characteristics of Korean housing.
The OECD further advised reforming Korea's inheritance tax system into an inheritance acquisition tax and simplifying the four-tier progressive corporate tax structure into a single system.
According to the Ministry of Economy and Finance, the OECD released the "2026 Korea Economic Survey" with these contents on Tuesday. Every two years, the OECD reviews the economic trends of member countries and issues country-specific economic surveys containing policy analysis and recommendations. This Korea report consists of four chapters: macroeconomic policy for the future; tax reform for growth and revenue; smartening education and lifelong learning; and reshaping the geographic landscape of opportunity.
Regarding Korea's property tax system, the OECD first pointed out that the share of holding taxes is low. Holding taxes account for 29.4% of Korea's total property tax revenue, only half the OECD average of 56%, while transaction taxes account for 50.4%.
To correct such market distortions, the report recommended that "property taxation should shift from transaction taxes to holding taxes, and in the long term, a taxation system based on market prices should be established." It emphasized that "a revenue-neutral shift that reduces the share of transaction taxes and increases the share of holding taxes would support residential mobility, improve labor market efficiency, and ease friction in the housing market." However, the OECD recommended that any expansion of holding taxes be carefully designed in light of the unique characteristics of Korea's housing market.
Indeed, Korea's total property tax revenue amounts to 3.0% of GDP, higher than the OECD average of 1.6%. Property taxes also account for 11.7% of Korea's total tax revenue, more than double the OECD average of 5.1%. This means that indiscriminately raising holding taxes could result in a heavier tax burden for the public.
The OECD also recommended reforming corporate taxes. For corporate taxes, it proposed reducing tax expenditures, which reach 15.5%, and gradually converting the current complex four-tier progressive tax rate structure into a single corporate tax rate. It also called for broadening the tax base for income tax, from which 32.5% of workers receive tax exemptions, through the reorganization of tax expenditures. Capital gains from stocks and the like are effectively tax-free for individuals who are not major shareholders, and the OECD added that Korea should aim to uniformly tax various types of capital gains over the medium to long term.
Regarding the family business inheritance deduction system, which recognizes up to 60 billion won, the OECD said, "As time passes, concerns are growing that the scale of the deduction has expanded and that the system is being misused for tax avoidance," and advised that "it needs to be reviewed and supplemented to mitigate the risk of being used for inheritance tax avoidance." It also recommended reviewing a shift from the current inheritance tax method, which is levied on the entire estate of the deceased, to an "inheritance acquisition tax" system that taxes only the property actually acquired by the beneficiary, as in most OECD member countries.
For tobacco, on which taxes have been frozen since the Park Geun-hye administration, the OECD called for a tax increase, citing that tobacco taxes and retail cigarette prices are low compared to the OECD average. For alcohol taxes, it presented the view that levying taxes based on alcohol content would be more effective from a public health perspective. In the consumption tax sector, it pointed out that Korea's value-added tax rate of 10% is half the OECD average of 19.3%, and recommended broadening the tax base by reducing the scope of simplified taxation and the exemption range for low-value imported goods.
To improve the quality of low-quality higher education, the OECD recommended allowing university tuition increases and gradually reducing the local education finance grant, which is allocated to elementary, middle, and high schools linked to national taxes. This is expected to lend support to the government, which has been pushing for reform of education grants.
The OECD offered overall criticism of Korea's education system. It pointed out that while the academic level of Korean youth is high, the education system does not sufficiently foster self-directed learning or critical thinking, so competencies decline as people age. It also identified Korea's fierce college entrance competition as a problem, noting that enormous resources are being poured into inefficient competition to enter top universities, and that although almost all students participate in this competition, only a few survive as winners.
Meanwhile, the OECD also revised its forecast for the Korean government's debt ratio that day. In the economic outlook released last month, the OECD had lowered its forecast for this year's general government debt-to-GDP ratio from 52% to 48.2%. It also revised down its forecasts for last year and next year to 45.8% and 50.2%, respectively. The OECD said, "There was an error in the debt calculation process," and revised its government debt ratio forecasts upward by 2.1 to 5.4 percentage points. As a result, Korea's government debt ratio forecasts were revised to 50.4% for 2025, 51.4% for 2026, and 52.3% for 2027.
