Property Tax Reduction and Major Shareholder 300 Million Won Decision This Week...Significantly Revised Under Pressure from the Ruling Party

Party-Government Clash... Compromise by Accepting Ruling Party's Claims

[Image source=Yonhap News]

[Asia Economy Reporters Jang Se-hee and Won Dara] The ruling party, government, and Blue House are expected to announce the scope of property tax relief and the major shareholder criteria for capital gains tax on stocks within this week. The related bills are scheduled to be discussed at the National Assembly's Planning and Finance Committee on the 6th, making further delays difficult. Amid ongoing clashes over various issues, the ruling party is pushing the government to significantly revise the existing government proposals.

On the 1st, the Democratic Party of Korea, the government, and the Blue House held a high-level meeting at the Prime Minister's official residence in Seoul to discuss property tax reductions and easing the major shareholder threshold to 300 million KRW, but no final conclusion was reached. However, it is reported that a compromise was discussed, with the government partially accepting the ruling party's demands.

During the closed-door meeting, the ruling party and government reportedly discussed expanding the eligibility for property tax reductions for single-homeowners to those with publicly announced property values up to 900 million KRW, while applying a differentiated reduction rate starting from properties exceeding 600 million KRW. Initially, the government insisted on easing the property tax burden only for homes valued at 600 million KRW or less, but the ruling party proposed raising this to 900 million KRW, leading to a compromise.

For single-homeowners, it is strongly considered to lower the tax rate by 0.05 percentage points for properties up to 600 million KRW in tiers, and by a smaller margin of 0.03 percentage points for properties valued between 600 million and 900 million KRW. The government initially expressed concerns about reduced local tax revenues, but the Democratic Party pressured the government, arguing that since most housing prices in the Seoul metropolitan area exceed 1 billion KRW, the 600 million KRW threshold is too low. A government official stated, "For properties between 600 million and 900 million KRW, we are considering a differentiated reduction with a smaller rate cut," adding, "The 0.03 percentage point figure was set considering local government tax revenues and the actualization rate of publicly announced prices."

At the meeting, the ruling party, government, and Blue House also discussed easing the criteria for major shareholders subject to capital gains tax on stock transfers. It is reported that a revised proposal was presented to raise the major shareholder taxation threshold from 300 million KRW to 500 million KRW. However, the Ministry of Economy and Finance, the relevant department, confirmed that it has never proposed changing the major shareholder criteria.

The Enforcement Decree of the Income Tax Act includes provisions to lower the stock holding threshold for major shareholders subject to capital gains tax from 1 billion KRW to 300 million KRW starting next year. As of the end of this year, major shareholders who sell their stocks after April next year will have to pay 22-23% of their gains as capital gains tax. In this regard, the Democratic Party is pressuring the government to postpone the current standard for two years until 2023. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki previously stated that while maintaining the rule strengthening the threshold from 1 billion KRW to 300 million KRW, changing the family aggregation rule to an individual basis would effectively ease the capital gains tax threshold to around 600-700 million KRW. If raised to 500 million KRW, it would increase to about 800-900 million KRW.

The Democratic Party is blocking tax policies that could influence voter sentiment ahead of the major elections for Seoul and Busan mayors next year, which have become as significant as a presidential election. A Democratic Party lawmaker said, "Since the by-elections are approaching, taxes are a sensitive issue," adding, "The party's position is to minimize the tax burden as much as possible."

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