Is It a Crime That House Prices Rose?… Korea's Property Tax Burden Twice the OECD Average

National Assembly Budget Office Report
Property Tax Revenue at 4.0% of GDP... Corporate Tax Revenue Also at 3.4% of GDP, Above OECD Average

[Asia Economy Sejong=Reporter Kwon Haeyoung] It has been revealed that the proportion of property tax revenue to South Korea's Gross Domestic Product (GDP) stands at 4.0%, which is double the average of the Organisation for Economic Co-operation and Development (OECD). The share of corporate tax revenue is also higher than the OECD average. This indicates that the South Korean government collects more property and corporate taxes relative to its economic size compared to other countries, increasing the need for tax system reform since the new administration took office.

According to the "2022 South Korea Fiscal Report" analysis released by the National Assembly Budget Office on the 26th, South Korea's nominal property tax revenue as a percentage of GDP in 2020 was 4.0%, exceeding twice the average of 1.9% among 38 OECD countries.

Property taxes include acquisition taxes on assets such as real estate, property tax, comprehensive real estate tax, inheritance tax, gift tax, and securities transaction tax. The share of property tax revenue relative to GDP rose from 3.0% in 2017, the first year of the Moon Jae-in administration, to 3.1% in 2018 and 2019, and then to 4.0% in 2020. This increase is attributed to the sharp rise in real estate prices and punitive taxation such as the "holding tax bomb" on multiple homeowners, which significantly boosted real estate tax revenue. South Korea's top inheritance tax rate is also 50%, higher than France (45%), the United States (40%), Spain (34%), and Germany (30%).

Corporate tax revenue, levied on corporate income, accounted for 3.4% of GDP, exceeding the OECD average of 2.7% by 0.7 percentage points. The current government raised the top corporate tax rate from 22% to 25% and expanded the tax bracket stages from three to four. On the other hand, personal income tax revenue was 5.2% of GDP, lower than the OECD average of 8.3%. As a result, the combined share of personal income tax and corporate tax revenue relative to GDP was 8.6%, below the OECD average of 10.9%.

Additionally, consumption tax revenue, which includes value-added tax (VAT), individual consumption tax, transportation, energy and environmental taxes, and customs duties, accounted for 6.8% of GDP, falling short of the OECD average of 10.6%.

Given that South Korea's property and corporate tax revenue proportions relative to economic size are higher than those of OECD countries, calls to reduce property and corporate taxes are growing. Choo Kyung-ho, the Deputy Prime Minister and Minister of Economy and Finance nominee, hinted at plans to lower corporate tax rates in written responses submitted to the National Assembly ahead of his confirmation hearing scheduled for the 2nd of next month. Choo stated, "There is a need to review the current corporate tax system, including the high top tax rate and complex tax base brackets, to actively support private-led growth from a tax perspective and strengthen corporate international competitiveness."

Conversely, there are considerable suggestions to consider raising the VAT rate, which has been maintained at 10% since its introduction in 1977, to strengthen fiscal soundness. South Korea's VAT revenue relative to GDP was 4.6% as of 2019, lower than the OECD average of 7%. However, concerns such as high inflation and regressivity (where the tax burden on low-income groups is higher than on high-income groups) remain challenges.

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