With the 'Top 2% Comprehensive Real Estate Tax' Plan Forced... Concerns Over Confusion Due to Changing Taxation Criteria Every Year

June Revision Likely to Apply Retroactively... Government Must Amend Enforcement Decree Annually

[Asia Economy Reporters Son Sun-hee (Sejong), Jang Se-hee] The Democratic Party of Korea is reportedly seriously considering a comprehensive real estate tax plan targeting the 'top 2% of official property prices' proposed by the party's internal Real Estate Special Committee. From the tax base date of June 1, the subjects for the comprehensive real estate tax (종부세) will be determined alongside the increased capital gains tax, and the Democratic Party appears determined to push forward, stating there are no alternative plans. Although the ruling party said it would gather additional opinions through public hearings next month, it is expected to be merely a formal procedure. The government has expressed reluctance, noting that applying the tax based on a percentage means the monetary threshold for taxation would change every year, requiring annual revisions to the enforcement ordinance. Difficulties in coordinating opinions between the party and the government are anticipated.

According to the government and the Democratic Party on the 31st, the ruling party is expected to finalize the comprehensive real estate tax reform plan centered on the special committee's proposal next month. Each year, the Ministry of Land, Infrastructure and Transport determines and announces the official land prices in April, and based on this, the subjects for the comprehensive real estate tax corresponding to the 'top 2%' will be selected and notified by June 1 of that year.

However, if the comprehensive real estate tax base is adjusted by 'percentage' rather than the current fixed amount (official property price of 900 million KRW for a single household with one house), confusion is expected at the field level. Not only will the tax base corresponding to the 'top 2%' change every year, but taxpayers will also face increased uncertainty as they cannot know whether they are subject to the tax until the government informs them. A government official said, "There has never been taxation based on a specific percentage for the comprehensive real estate tax, so related statistics are not yet available." Another senior government official also pointed out, "If adjusted by percentage, it is impossible for individuals to predict annually whether they are subject to taxation," adding, "Because taxpayers cannot know in advance if they are subject to the tax, it is a very unstable tax system."

The government has identified that the housing ownership price corresponding to the 'top 2%' this year is around 1.12 billion KRW. The problem is that this threshold changes annually depending on housing price fluctuations, and the government must revise the enforcement ordinance each year to specify the applicable tax base amount. While technically feasible, it requires unnecessary administrative effort.

The 'top 2%' proposed by the Democratic Party is, in fact, not significantly different in application from the originally suggested '1.2 billion KRW' threshold during the initial comprehensive real estate tax reform discussions. Nevertheless, the insistence on using a 'percentage' is interpreted as being driven more by 'political reasons' than by practical tax effects. On the surface, easing the threshold to 1.2 billion KRW would invite criticism of 'tax cuts for the wealthy,' and since the opposition People Power Party has already proposed '1.2 billion KRW,' accepting this would appear as conceding to them. A Democratic Party official hinted, "The comprehensive real estate tax reform plan proposed by the People Power Party is excluded from the discussion."

The government plans to retroactively apply this year's tax subjects once the comprehensive real estate tax reform plan is finalized in June. Since the number of taxpayers subject to the comprehensive real estate tax is expected to decrease significantly compared to before, resistance to retroactive application is anticipated to be minimal.

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