Tax Resistance Ignited by Comprehensive Real Estate Tax Spreads to Property Tax and Capital Gains Tax

216 Claims Related to Comprehensive Real Estate Tax in Q1 This Year Surpass Last Year's Total
Increased Tax Rates Lead to Issues Like Deduction and Acquisition Price Calculation at the Tribunal
Gift Tax Conflicts Grow Amid Sharp Rise in Capital Gains Tax and Increased Gifts

[Sejong=Asia Economy Reporter Moon Chaeseok] Experts analyze that the increase in tax appeal filings is due to the growing complexity of the taxation system. The current administration introduced a new ultra-high-income bracket for income tax and strengthened tax policies to control the real estate market, but the rapid pace has intensified tax resistance. Professor Ahn Changnam of Gangnam University’s Department of Taxation explained, "The main reasons for the increase in tax appeal filings are often either higher taxes or a more complicated system."

The most noticeable trend in tax appeal filings is the rise in cases related to real estate, including the comprehensive real estate holding tax (종합부동산세, Jonghap Budongsanse). In the first quarter of this year alone, 216 cases were filed, surpassing last year’s total of 168 cases. This indicates significant dissatisfaction with real estate taxation.

Last year, the government raised the basic tax rate for the comprehensive real estate holding tax from 0.5?2.7% to 0.6?3.0%, an increase of 0.1?0.3 percentage points. Additionally, the tax rates applied to individuals owning two houses in designated adjustment areas or three or more houses were increased from 0.6?3.2% to 0.8?4.0%, a maximum increase of 0.8 percentage points. As a result, the number of taxpayers subject to this tax exceeded 660,000 last year, an increase of 140,000 from the previous year. Although the comprehensive real estate holding tax has long been perceived as a wealth tax, a large number of middle-class taxpayers, who never expected to be subject to it, were included. Consequently, many appeals reportedly included statements such as "I didn’t know I was a taxpayer for the comprehensive real estate holding tax."

As tax rates increased, many issues that had not been significant before, such as deduction amounts and capital gains tax criteria, have flooded the Tax Tribunal. According to the National Tax Service, land used for business purposes is classified as separately aggregated land, allowing a maximum deduction of 8 billion KRW and applying a low tax rate of 0.5?0.7%. In contrast, non-business land is considered comprehensively aggregated land, taxed at up to 3% with a deduction of 500 million KRW. Land where construction has not started by the comprehensive real estate holding tax assessment date is regarded as non-business land, meaning the deduction applied is 500 million KRW instead of 8 billion KRW. An official familiar with the Tax Tribunal’s operations said the increase in comprehensive real estate holding tax appeals this year was largely due to "many opinions that the criteria distinguishing business and non-business land are ambiguous."

The unclear system for calculating acquisition costs has become an issue due to capital gains tax rates rising up to 75%. While the sale price of land can be determined through actual transaction prices, acquisition costs are difficult to accurately calculate because many lands were acquired long ago. From the tax authorities’ perspective, the lower the acquisition cost, the higher the capital gain and thus the greater the tax revenue. Conversely, taxpayers prefer higher acquisition costs to reduce the capital gains tax owed. An official familiar with the Tax Tribunal explained, "Most capital gains tax appeals concern acquisition costs. Taxpayers want expenses such as home repair costs and litigation fees included in acquisition costs, whereas authorities often consider only the purchase price at the time of acquiring the house or land as the acquisition cost."

Due to the government’s rapid increase in capital gains tax, more people are opting for gifts instead, leading to growing conflicts over gift tax. Disputes over the valuation of assets intended for gifting have increased tax appeal filings. Although gift tax-related appeals gradually decreased from 557 cases in 2018 to 451 last year, they surged to 224 cases in the first quarter of this year, nearly half of last year’s total.

With the government starting to impose heavier capital gains taxes on multi-homeowners this month and real estate prices continuing to rise, tax resistance is expected to intensify. The National Assembly Budget Office forecasts that the number of comprehensive real estate holding tax recipients will exceed one million this year. It also anticipates that the total tax amount will sharply increase to a maximum of 6.053 trillion KRW.

Professor Ahn Changnam criticized, "In the cases of the comprehensive real estate holding tax and capital gains tax, the government strengthened policies to curb speculation but included 'one household, one house' owners as taxpayers, which has sown the seeds of unnecessary disputes."

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