The upcoming reform of real estate taxes has brought to the forefront the need to balance the taxation of high-value single homes with the protection of residents. Critics argue that the current tax system has encouraged a preference for so-called 'one smart home,' while cautioning that increasing tax burdens could shift the financial strain onto resident homeowners and the rental market.
On July 16, the Ministry of Economy and Finance held a public discussion on real estate tax reform at the Bank Hall in Jung-gu, Seoul, led by Deputy Prime Minister and Minister of Economy and Finance, Ku Yun-cheol. The meeting focused on the direction of reforms for the comprehensive real estate tax, capital gains tax, and long-term holding special exemptions. The government plans to consolidate discussions from various sectors, including supply, finance, and taxation, before a major forum led by the President on July 23 to discuss real estate policy.
During the discussion, there was a consensus that the criteria for the comprehensive real estate tax should shift from the number of homes owned to the total asset value of the properties. This approach aims to establish a fairer tax burden based on the value of the homes rather than the quantity owned.
Oh Jong-hyun, head of the Tax Research Division at the Korea Institute of Public Finance, stated, "All issues surrounding real estate taxation are concentrated on the high-value single home problem," and emphasized the need to lower tax burdens for resident homeowners while adjusting tax criteria for non-residents.
Oh also suggested that taxation should differentiate between homes for residential and investment purposes, proposing lower tax burdens for primary residences while imposing higher taxes on non-residential properties. He argued that applying tax criteria based on home value rather than the number of homes owned would be more equitable.
Ham Young-jin, head of the Real Estate Research Lab at Woori Bank, noted that even with the same total assessed value, the tax burden can differ significantly based on the number of homes owned. He advocated for a tax system based on assessed value rather than the number of properties and suggested that the long-term holding special exemption should be redesigned to focus on actual residency.
The debate also extends to where to set the threshold for high-value single homes. Professor Shim Chung-jin from Konkuk University proposed that high-value homes should be defined based on capital gains rather than sale prices, suggesting a threshold of 3 billion won (approximately $2.3 million) in capital gains.
Calls for strengthening property taxes have also emerged. Nam Gi-eob, head of the Land + Freedom Research Institute, argued that the effective tax rate on property is currently one-third to one-fifth of that in major developed countries, asserting that raising it to match international standards should not be considered punitive. He suggested that not only the comprehensive real estate tax but also property taxes should be increased.
Revisions to the long-term holding special exemption for capital gains tax were also discussed. The current system allows homeowners to receive up to an 80% exemption on capital gains based on the duration of ownership and residency. Critics have pointed out that homeowners who do not reside in their properties can still receive up to a 40% exemption, which disproportionately benefits those holding high-value single homes.
Chung Se-eun, a professor at Chungnam National University, commented on the need to reduce the special exemption, stating, "Housing prices have risen too much, so even if capital gains taxes are high, homeowners are still profiting significantly." He argued for a stronger enforcement of capital gains taxation based on the principle that taxes should be levied where income is generated.
However, some experts caution that tightening tax regulations could lead to a slowdown in transactions and instability in the rental market. Seo Jin-hyung, a professor at Kwangwoon University, warned that maintaining long-term holding benefits for both residents and non-residents is essential for ensuring a stable supply of rental housing. He expressed concern that drastically reducing the special exemption could diminish the incentive to sell homes, exacerbating the issue of housing inventory.
The government's tax reform plan is expected to hinge on how to distinguish between 'speculative holdings' and 'residential holdings.' It is crucial to enhance the fairness of taxation on high-value single homes while also preventing a sudden increase in tax burdens for retirees and long-term residents.
The Ministry of Economy and Finance plans to refine the tax reform proposal by the end of this month based on the feedback gathered during the discussion. A shift from a tax system based on the number of homes to one focused on value and residency is being seriously considered, with debates over the threshold for high-value homes and adjustments to the special exemption likely to continue until the final proposal is made.
* This article has been translated by AI.
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