[2023 Tax Reform] Capital Gains Tax Surcharge Relief Measures Ultimately Excluded

The reform plan for the heavy taxation on real estate capital gains tax, which had attracted significant market attention, was ultimately excluded from this year's tax law revision. It appears that the decision to postpone judgment on whether to abolish it was made considering the sharp decline in tax revenue due to the plunge in real estate transactions, market conditions, and the likelihood of parliamentary approval.

[Image source=Yonhap News]

원본보기 아이콘

The '2023 Tax Law Revision' announced by the government on the 27th did not include the reform plan for the heavy taxation on real estate capital gains tax.

Under the current Income Tax Act, a heavy tax rate is applied when transferring real estate held for less than two years or owned by multi-homeowners. The basic capital gains tax rate ranges from 6% to 45%, but for owners of two homes in designated adjustment areas, an additional 20 percentage points are added to the basic rate, and for those owning three or more homes, an additional 30 percentage points are added.

However, as concerns were raised that excessive capital gains tax suppresses real estate transactions, calls to abolish or revise the heavy taxation on capital gains tax grew louder. This aligns with the real estate policy stance of the Yoon Seok-yeol administration, which has focused on normalizing transactions since its inception. Previously, the Yoon administration decided to temporarily exclude the heavy taxation on capital gains tax for multi-homeowners until May next year, but this was only a temporary measure, not a permanent reform plan.

Accordingly, the government was reportedly considering either abolishing the heavy taxation on capital gains tax or reducing the holding period from two years to one year.

However, the sharply decreased real estate tax revenue this year emerged as a variable. According to the Ministry of Economy and Finance, capital gains tax revenue from January to May decreased by 8.9 trillion won compared to the same period last year.

The ongoing situation of a National Assembly dominated by the opposition party and the differing views between ruling and opposition parties on the real estate market were also cited as reasons for the cautious approach to reforming the capital gains tax. In the midst of an unprecedented tax revenue shortage, tax reform plans that reduce taxes are likely to face opposition from the opposition party and have little chance of passing in the National Assembly. Moreover, the current situation is one of opposition majority. At the end of last year, the opposition party also opposed the comprehensive real estate tax relief plan, arguing it was a tax cut favoring the wealthy.

Ultimately, considering these various circumstances, it seems the government has decided to slow down the pace of reform related to the heavy taxation on capital gains tax.

A Ministry of Economy and Finance official stated, "Considering the unstable real estate market and the situation in the National Assembly comprehensively, we judged that it is not appropriate to make a decision at this point," adding, "We plan to continue discussions until early May next year, when the heavy taxation relief measure expires."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.