Raising Real Estate Tax Rates Based on "Advanced Country Cases"?... "Cherry-Picking" According to Preferences

"Singapore, once said to have 'high acquisition tax,' exempts capital gains tax after 3 years of holding
In the UK, tenants pay property tax

Ignoring 'acquisition-holding-transfer' phases
Only presenting statistics favorable to policies
'Selective high tax rates show narrow-minded behavior'"

[Asia Economy Reporter Lee Chun-hee] Although the government is emphasizing a "developed country tax system" and pushing for an increase in real estate tax rates, criticism is emerging that it is engaging in "cherry picking" by highlighting only the parts of major countries' policies that suit its agenda. Cherry picking refers to the attitude of hiding unfavorable cases or data and presenting only favorable information to maintain a particular view or stance.

According to the industry on the 18th, as the government recently strengthened acquisition tax, comprehensive real estate tax, and capital gains tax for multi-homeowners, it was revealed that only favorable evidence supporting some government policies was presented while citing examples from major developed countries. The government is asserting the legitimacy of the introduction by presenting only specific parts with high tax rates by country, without considering the characteristics of real estate taxation, which operates in a linked manner with different levels of taxation at each transaction stage such as acquisition, holding, and transfer.

'High acquisition tax' in Singapore... capital gains tax is '0' if held for 3 years

Lee Hae-chan, Leader of the Democratic Party of Korea (center) / Photo by Yoon Dong-joo doso7@

A representative case is Singapore's high acquisition tax. On the 6th of last month, Lee Hae-chan, leader of the Democratic Party, said at a closed supreme council meeting, "In Singapore, acquisition tax of over 12% is imposed starting from the second home," and added, "It is necessary to consider overseas cases such as Singapore to reduce speculative demand." Following this, the government significantly raised the acquisition tax rate from the previous 1-3% to 8% for two-homeowners and 12% for those with three or more homes and corporations through the July 10 real estate measures.

This claim is based on the report "Real Estate Tax Policies and Implications in France and Singapore" published by the Korea Research Institute for Human Settlements in June. According to the report, Singapore has a progressive tax rate structure with different rates by bracket, with a basic acquisition tax rate of 1-4%. On top of this, an additional acquisition tax of up to 30% is added. For Singaporean citizens, an additional acquisition tax rate of 12% is imposed on two-homeowners and 15% on those with three or more homes.

However, what the ruling party and government overlooked is that Singapore fundamentally does not have a capital gains tax on housing. To prevent speculative profits, a seller's stamp duty, which can be seen as a capital gains tax, is imposed only on houses held for a short period. For houses acquired after March 2017, a 12% stamp duty is imposed if sold within one year, 8% if held for 1-2 years, and 4% if held for 2-3 years. If held for more than 3 years, the stamp duty rate is 0%.

This is completely opposite to Korea, where capital gains tax is imposed even on single-homeowners with high-priced houses exceeding 900 million KRW, regardless of long-term holding. Considering that the median price of apartments in Seoul announced by KB Kookmin Bank reached 927.87 million KRW last month, more than half of long-term single-homeowners in Seoul are subject to capital gains tax.

President emphasizes only 'low' holding tax without mentioning 'high' transaction tax

It is not only acquisition tax that the government selectively uses parts of the real estate tax system to justify tax rate increases. On the 10th, President Moon Jae-in said at a senior secretaries meeting, "The effective holding tax rate in our country remains at about half the average of the Organization for Economic Cooperation and Development (OECD)," and "Although the holding tax burden has increased, it is still relatively low compared to other developed countries," which has also been criticized for selective use of statistics.

As of 2018, Korea's holding tax ratio relative to GDP was 0.9%. This is lower than the OECD average of 1.1%, and also lower compared to the UK (3.1%), the US (2.7%), and France (2.6%), ranking 17th among all OECD countries. According to an analysis by the Land + Liberty Research Institute earlier this year, the effective tax rate on private real estate was 0.16%, which is indeed about half the average of 0.37% among 12 OECD countries with available data.

On the other hand, transaction tax accounts for 2.0% relative to GDP, the highest proportion among OECD countries. The government counters this by saying, "OECD statistics include securities transaction taxes unrelated to real estate, so simple comparisons are not appropriate." However, according to the National Assembly Budget Office, even excluding securities transaction taxes, the ratio of real estate transaction tax to GDP remains at 1.5%, which is the highest level in the OECD. According to their calculations, the average real estate transaction tax in the OECD is 0.4%, and countries with high holding taxes such as the UK and France all have a low transaction tax ratio of 0.8% relative to GDP. Notably, the US has a transaction tax ratio of only 0.1%.

Korea increases holding tax burden... in the UK, although holding tax is high, tenants pay it, not landlords

President Moon Jae-in is presiding over a senior secretaries and aides meeting at the Blue House on the afternoon of the 10th. [Image source=Yonhap News]

Korea's combined ratio of real estate holding and transaction taxes is 2.4%, higher than the OECD average of 1.5%, ranking 7th among all OECD countries. The UK ranked first with 3.9%, followed by France (3.4%) and Canada (3.4%). Germany (0.8%), the Netherlands (1.3%), and Sweden (1.9%) had lower ratios than Korea.

In particular, although the UK ranks second with a holding tax ratio of 3.1%, just behind Canada (3.1%), according to the Korea Research Institute for Human Settlements, the UK's holding tax, called the Council Tax, is fundamentally different from Korea's taxation method. Unlike Korea, where the tax is imposed on the owner, in the UK, the tax obligation lies with the actual resident. In other words, if it is a rental property, the tenant, not the landlord, is the taxpayer.

An industry expert who requested anonymity said, "Real estate taxation is a sophisticated structure where acquisition tax, holding tax, and capital gains tax are intricately linked to determine the tax amount, but the government is showing a narrow-minded behavior by ignoring this and selectively adopting only parts with high tax rates." He criticized, "Ultimately, to encourage the release of listings that the government desires, policy measures such as temporary capital gains tax reductions are necessary, but the government is only employing methods that increase the tax burden."

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