[Free Speech] The Punitive Comprehensive Real Estate Tax Must Be Reformed and Overhauled Without Delay

The number of people subject to the comprehensive real estate holding tax has surged. As housing prices have skyrocketed and officially assessed land prices have risen, the number of taxable homes subject to the comprehensive real estate holding tax has tripled compared with the past. Except for last year, when the number of taxable persons rose rapidly, the number this year is projected to be about 770,000, and the amount paid has increased more than tenfold compared with the amount paid four years ago.

This increase in taxation will place a considerable burden on tenants and ordinary citizens. Even now, the number of people subject to the comprehensive real estate holding tax appears likely to exceed 1 million, and if holding taxes rise due to indiscriminate increases in officially assessed prices, landlords may raise monthly rent, shifting the burden onto innocent ordinary people and tenants. The government’s adjustment of the official price realization rate and the fair market value ratio effectively places an upper limit on housing prices, which appears excessive.

People feel burdened because they expect that, as the scope of those subject to the comprehensive real estate holding tax expands, they too will one day have to pay it. Many ordinary citizens own just one home purchased around 20 years ago. As real estate bought cheaply has surged in price due to policy failure, even those who own only one home in Seoul have now become subject to the comprehensive real estate holding tax, turning it into a tax that encompasses the middle class as well. In other words, one-home owners among the ordinary and middle classes in areas where prices naturally rose have effectively been classified as upper class. For those with low incomes or for the elderly, it is obvious that not only do they lack the financial means to pay immediately like the upper class, but this is also an excessively harsh measure.

The priority should be easing punitive taxation while taking into account the burden on those without homes and on long-term residents who own only one home. Proposals recently discussed—such as raising the threshold for exclusion from the comprehensive real estate holding tax from 900 million won to 1.2 billion won in order to narrow the scope of taxation, and restoring this year’s increased tax rates to last year’s level—would be valid.

Let us look at the United States. In the United States, holding tax is imposed based on the price at which a home was first purchased. For example, if Mr. A, an American, bought a house in the past for 500 million won and its current market price is about 4 billion won, property tax is still levied today based on the original purchase price of 500 million won. In contrast, in Korea, the tax burden is excessive because it is imposed on unrealized income. Most countries similarly have a progressive tax rate structure that collects more tax from more expensive homes, but the problem is that Korea imposes high taxes as long as a person currently owns a high-priced home, even if they have no income and even if the home was inexpensive in the past.

Property tax is the foundation of local communities. Property tax should be used by local governments in the relevant area to manage funds with that tax revenue. The original and proper purpose of taxation is to collect taxes from residents who own buildings and land and use them for various local needs. However, Korea operates its finances by layering the comprehensive real estate holding tax, a wealth tax, on top of property tax. Around the world, there are countries that impose only property tax, but none that collect a comprehensive real estate holding tax.

To avoid further increasing the burden on the people, Korea needs to reorganize and review the design of its various tax systems. People naturally have the desire to move to better places and to rise higher. We have only made efforts to enjoy better lives. Those efforts must not be punished by using excessive tax increases as a tool to take away part of a household’s livelihood.

Junhyuk Lim, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] '징벌적 과세' 종부세, 하루빨리 개편하고 재정비해야

Author: Jun-hyeok Im

Date: 2021-05-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=11&idx=23731