National Assembly Discusses Capital Gains Tax Relief...Ruling and Opposition Agree on Raising Non-Taxable Threshold for Single-Homeowners

Disagreement Over Differential Application of Long-Term Holding Special Deduction by Capital Gains
Tax Subcommittee Meeting on 15th... Government Concerned About Wrong Signals

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] The National Assembly's discussion on the capital gains tax reform bill, which the ruling party is pushing as its official stance, is set to intensify. Both ruling and opposition parties generally agree on raising the threshold for high-priced homes exempt from capital gains tax, but there are differences in detailed issues, so the level of reform is expected to vary depending on the progress of discussions.

According to the National Assembly and government on the 14th, the National Assembly's Planning and Finance Committee will hold a tax subcommittee meeting on the 15th to begin discussions on the Income Tax Act amendment bill containing the capital gains tax reform. The bill, which was primarily proposed by Representative Yoo Dong-su, the senior deputy chairman of the Democratic Party's Policy Committee, in August, aims to raise the threshold for high-priced homes exempt from capital gains tax for one household one home from the current market price of 900 million KRW to 1.2 billion KRW. This is based on the judgment that the current high-priced home standard, maintained since 2008, is unrealistic considering inflation and housing price increases over time.

The amendment also includes changes to the long-term holding special deduction rate (장특공제, 40% for residence period + 40% for holding period) for one household one home owners, which was uniformly applied regardless of the size of capital gains from housing transactions. The residence period deduction rate remains unchanged, but the holding period deduction rate will be applied differentially from 10% to 40% depending on the capital gains. Through this, for ultra-high-priced homes with capital gains exceeding 1.5 billion KRW, the holding period deduction rate will be drastically reduced from the current 40% to 10%, increasing the tax burden.

There is also a provision to change the starting point for calculating the residence and holding periods for the long-term holding special deduction applied to one household one home owners from the current acquisition date of the relevant home to the point when the taxpayer becomes a one-home owner.

The Democratic Party views the defeat in the April 7 by-elections as due to failures in real estate policy and has prepared this capital gains tax reform plan as its official stance through a party meeting. They plan to pass all three major provisions of the bill within the regular session of the National Assembly. Although some argue that amid the Daejang-dong development special favor allegations and presidential candidate Lee Jae-myung's call for recapturing unearned income, it is difficult for the party to proceed with the capital gains tax relief as originally planned, the prevailing view is to proceed as decided in the party meeting. The party's overall perspective is that the recent slight slowdown in the real estate market's upward trend is not a reason to change the capital gains tax relief policy. With the year-end comprehensive real estate tax notices expected ahead of the presidential election, there are also opinions that it is difficult to withdraw the capital gains tax relief card as it could provoke public sentiment on real estate.

The opposition parties generally agree on raising the exemption threshold for capital gains tax. However, they show differences in detailed issues such as the differential application of the long-term holding special deduction rate, which increases the burden on some taxpayers, so detailed adjustments to the capital gains tax reform are expected during the National Assembly discussions.

The government, while saying it will observe the National Assembly discussions for now, does not hide concerns that capital gains tax relief could send the wrong signals to the market. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki said at the National Assembly audit on the 20th of last month, "It seems necessary to adjust the capital gains tax standards for real estate," but added, "I am also very worried that it could send wrong signals or act as a factor that undermines market stability."

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