Abolition of Tax Exemption for Existing Leaseholders... "High Risk of Unconstitutionality"

Exclusion of Comprehensive Real Estate Tax Aggregation and Capital Gains Tax Reduction Benefits Abolished... Violation of Trust Protection Principle
Incorrect Policy Amendments Cannot Apply to Existing Businesses... Citizens Bear the Damage

[Asia Economy Reporter Kwangho Lee] There is an argument that the government's revised housing market stabilization measures, which maintain the existing tax reduction benefits for current rental business operators by excluding them from the comprehensive real estate tax aggregation and abolishing capital gains tax reduction benefits, were an inevitable choice made in consideration of potential unconstitutionality.

On the 14th, Kim Seontak, chairman of the Korea Taxpayers Federation, stated, "The original ruling party's plan to abolish tax benefits for existing rental business operators violates the constitutional principle of protection of trust."

Chairman Kim explained, "The principle of protection of trust means that 'when a law is amended disadvantageously, the individual's trust in the continuity of the previous law must be protected.' It is a principle that 'if citizens have relied on the law to decide their actions, the legislature cannot arbitrarily deprive such trust as long as it is worthy of protection.' Although not explicitly stated in the constitutional text, the Constitutional Court regards it as 'naturally derived from the constitutional principle of the rule of law.'"

The Constitutional Court, in decision 94HunBa12, ruled that "in a case where a capital increase was made based on the belief that a tax credit for capital increase would be granted for three years, amending the tax law midway to shorten the tax reduction period violates the principle of protection of trust and is unconstitutional."

Chairman Kim assessed, "For this case to be ruled unconstitutional, there must be an inducement act by the government, a specific promise of tax reduction for a certain period, and when comparing the trust interest in the continuity of the law with the public interest from the legal amendment, the trust interest must be greater."

He continued, "In December 2017, the government specifically promised that if housing rental business operators registered and rented out for a certain period (4 years, 8 years) with rent increases within 5%, they would be excluded from the comprehensive real estate tax aggregation and receive capital gains tax reduction benefits as an inducement to alleviate the jeonse (key money deposit) shortage. Considering existing Constitutional Court precedents, the trust protection interest outweighs the public interest of stabilizing housing prices, making it highly likely to be ruled unconstitutional," he argued.

Furthermore, he emphasized, "Some argue that it is constitutional because it is a quasi-retroactive legislation, but the issue in this case is not whether it is retroactive legislation but whether it violates the principle of protection of trust."

He added, "If the government misjudges the situation and implements a wrong policy, it can be corrected prospectively, but it cannot be applied to existing operators. Therefore, policy decisions must be made carefully. Damage caused by hasty policies like this inevitably affects ordinary citizens," he added. If existing rental business operators enter a 'holding out' phase until the rental period ends, the phenomenon of withholding listings will continue for some time, potentially causing apartment prices to rise.

Chairman Kim pointed out, "Since the current government took office, real estate tax laws have been amended too frequently and complicatedly, making the tax laws incomprehensible even to tax experts," and said, "No matter how reasonable a law is, it must be understood by the public to be effective."

He also mentioned, "In the rule of law, legally enacted laws bind not only the citizens but also the state itself. If laws are frequently and disadvantageously amended at any time, legal stability and predictability are undermined, distrust in the law is fostered, and serious problems arise that prevent citizens from engaging in rational economic activities."

This content was produced with the assistance of AI translation services.