Ultimately a Temporary Measure... New Government Proposal Needed to Outline 'Property Tax Relief'

President-elect Yoon's Pledge 'Adjustment of Fair Market Value Ratio' Missing
Government Can Adjust Property Tax 40-80%... Likely to Accelerate After Inauguration
Comprehensive Reform Expected for Comprehensive Real Estate Tax, Requires Legal Amendment... Democratic Cooperation Key

[Asia Economy Reporters Kangwook Cho, Hyemin Kim, Dongpyo Kim] The government has decided to slightly lower the increase rate of official prices for apartment complexes compared to last year and to ease the burden of holding taxes by applying last year’s official prices. However, since this is expected to remain a provisional plan, more attention is focused on additional tax burden relief measures to be introduced by President-elect Yoon Seok-yeol. This is because the Presidential Transition Committee is reviewing a fundamental tax system reform. However, the key issue is whether cooperation from the Democratic Party can be secured, as many cases require legislative amendments.

◆ Official prices rose, but last year’s prices applied for tax calculation... Payment deferral for the elderly = According to the ‘2022 Official Price Plan for Apartment Complexes’ announced on the 23rd by the Ministry of Land, Infrastructure and Transport and other government departments, the nationwide official price change rate for this year was set at 17.22%. However, the holding tax (property tax and comprehensive real estate tax) calculated by applying the official price will use last year’s official prices instead of this year’s. This applies to single-homeowners. This measure was taken as the official prices rose significantly last year, causing a sharp increase in holding taxes not only for multi-homeowners but also for single-homeowners, which worsened public sentiment toward real estate.

Accordingly, the government stated that the tax burden for single-homeowners will remain at the previous year’s level. In particular, property tax for this year for official prices of 600 million KRW or less based on 2021 will decrease compared to 2020, and in the case of comprehensive real estate tax, entry into the new taxable group this year (estimated 69,000 people) will be blocked, reducing the total tax amount by about 174.5 billion KRW. Multi-homeowners who sell their homes before June 1 to become single-homeowners will also be taxed based on last year’s official prices.

A payment deferral system will also be introduced to ease the comprehensive real estate tax burden for the elderly. Single-homeowners aged 60 or older with total income not exceeding 70 million KRW (comprehensive income 60 million KRW) and tax amount exceeding 1 million KRW can defer payment until the time of transfer, gift, or inheritance. The health insurance premium assessment base for regional subscribers will be frozen, and the property deduction amount will be uniformly expanded to 50 million KRW. Previously, deductions ranged from 5 million to 13.5 million KRW depending on property size.

◆ “What does the government plan mean?”... Market reaction is ‘cold’ = This plan is, as the government stated, a so-called minimum ‘provisional plan.’ The level of relief is generally lower compared to the pledges made by President-elect Yoon. The proposals suggested by the Democratic Party were not fully reflected either. President-elect Yoon has also announced a large-scale holding tax burden relief. Representative measures include lowering the official price to the 2020 level by adjusting the fair market value ratio, restoring the comprehensive real estate tax rate for single-homeowners to the level at the beginning of the current government under President Lee Jun, and reestablishing the official price realization rate roadmap. Unlike the government’s holding tax relief measures focused on single-homeowners, Yoon’s pledges cover multi-homeowners as well.

The biggest difference between Yoon’s plan and this government plan is whether to adjust the fair market value ratio. Yoon pledged to lower this ratio to return the holding tax burden to the 2020 level. Adjusting the fair market value ratio directly affects the tax amount. This ratio is multiplied by the official price to determine the tax base for property tax and comprehensive real estate tax. This year, 60% is applied for property tax and 100% for comprehensive real estate tax. For example, if the official price is 1 billion KRW and the fair market value ratio is 60%, 600 million KRW is used as the tax base to impose tax. Under current law, the government can adjust property tax within a range of 40-80%. Since this is not a legislative amendment requiring a difficult parliamentary process, it is highly likely to accelerate with the new government’s inauguration in May. A transition committee official said, “Holding tax relief has already been announced as a pledge,” showing commitment to fulfilling the pledge.

The comprehensive real estate tax is also expected to be overhauled. Yoon pledged to reduce the tax rate for single-homeowners to the level before the Moon Jae-in administration. In this case, the current tax rate of 0.6-3% will be lowered to 0.5-2%. The plan to lower the tax burden cap of 150% for single-homeowners also has a larger reduction rate (50%) than the government’s announced reduction (100%). It also includes lowering the tax burden cap for multi-homeowners.

Since Yoon’s pledges include transaction taxes such as acquisition tax and capital gains tax, the transition committee is expected to create a comprehensive real estate tax reform plan beyond this measure. However, whether Yoon’s pledges will be fully implemented is uncertain. Adjusting the comprehensive real estate tax rate and transaction taxes require legislative amendments, so approval from the majority Democratic Party is necessary, making it difficult to predict passage within the year. Especially, reform or abolition of the comprehensive real estate tax conflicts with the Moon administration’s policy direction, so it is not something the Democratic Party would easily agree to.

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