Government Reluctant to Ruling Party's Proposal for 2% Comprehensive Real Estate Tax... Discussions on Easing Face Multiple Challenges

[Asia Economy Reporter Son Seon-hee (Sejong), Reporter Moon Je-won] The Democratic Party of Korea has failed to finalize the comprehensive real estate tax and capital gains tax reform. Although the ruling party plans to prepare tax reform measures, including the comprehensive real estate tax, through a public hearing next month, the actual possibility of reform has become uncertain as the government has expressed reluctance to ease the regulations.

According to a senior government official on the 28th, the ruling party and the government have reportedly been holding behind-the-scenes talks since early this month. The Ministry of Economy and Finance delivered the government’s proposal to the Democratic Party side. The day before, the ruling party’s real estate special committee announced that regarding the comprehensive real estate tax reform, the government proposed maintaining the current system while supplementing it with △ introduction of a payment deferral system △ freezing the fair market value ratio at 90% △ and establishing a long-term residence deduction for over 10 years.

The government holds a negative stance on the special committee’s proposal to tax the top 2% under the comprehensive real estate tax. A Ministry of Economy and Finance official said, "It is quite different from the existing (amount-based) comprehensive real estate tax system, and whether it is technically feasible is another matter for discussion." Unlike the current system, which is clear based on amounts, taxpayers find it difficult to recognize whether they belong to the ‘top 2%’. Inside and outside the party, there is speculation that since the 2% criterion corresponds to a publicly announced price of 1.15 billion won, the ratio could be included in the comprehensive real estate tax law amendment, while the specific amount could be set in the enforcement decree.

◆Even with capital gains tax easing... minimal effect on housing price stabilization= However, opinions are divided in the industry regarding the ruling party’s capital gains tax and comprehensive real estate tax reform proposals. First, in the case of capital gains tax, if the non-taxable threshold for single-homeowners is raised from 900 million won to 1.2 billion won as proposed by the real estate special committee, it is positively evaluated that the tax burden on actual buyers could be reduced. According to a capital gains tax easing simulation requested from Woo Byung-tak, head of the Real Estate Investment Advisory Center at Shinhan Bank, when an apartment purchased for 700 million won is sold for 1.5 billion won (with an 80% long-term holding special deduction), applying the current non-taxable threshold of 900 million won results in a capital gains tax of 10,494,000 won, but raising the threshold to 1.2 billion won reduces it significantly to 3,679,500 won.

Many analyses suggest that it is difficult to expect an increase in listings or housing price stabilization from easing capital gains tax. Since most single-homeowners are ‘replacement demand,’ lowering capital gains tax does not necessarily increase pure market supply. Rather, if the capital gains tax surcharge on multiple homeowners is properly implemented in June, the effect of withholding listings could increase. Mr. Woo said, "It is difficult to directly affect housing price rises or falls," and predicted, "Apartment prices will only be slightly adjusted within the new benchmark range around 1.2 billion won."

The plan to impose the comprehensive real estate tax only on the top 2% of publicly announced prices, rather than on houses exceeding 900 million won (for single-homeowners), is also viewed positively. Limiting the target to the top 2% is expected to reduce tax resistance and improve tax fairness. Lee Eun-hyung, senior researcher at the Korea Institute of Construction Policy, said, "It is very positive," adding, "It will naturally reflect social changes such as inflation."

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