[Inside Chodong] Sustainability Is Key in Real Estate Taxation

The recently announced tax reform proposal by the government includes a total of 42 items related to real estate taxation that are slated for adjustment. Among these, 14 require amendments to enforcement decrees or regulations. For instance, the government plans to raise the fair market value ratio—used when calculating the tax base—from the current 60% to between 70% and 80% in the future. In addition, the reasons for prior moves that will be recognized in the calculation of actual residence periods for long-term residence income deductions will be determined through amendments to the enforcement decree.

It is a natural step for enforcement decrees or regulations, as lower-level laws, to address matters not directly governed by statute. However, what is concerning is that the system can be easily shaped by the administration's preferences. Since enforcement decrees and regulations fall under the authority of the executive branch—in other words, the President—they have frequently been changed in line with the political inclinations of each administration, something we have observed many times in the past. For example, immediately after taking office, former President Yoon Suk-yeol suspended additional capital gains taxes on multi-homeowners in regulated areas through amendments to the enforcement decree.

Should we welcome a flexible approach to the system depending on economic conditions? In my view, shifting the tax system back and forth according to each administration incurs greater losses than gains, as it undermines predictability. While many salaried workers may be dissatisfied with taxes on earned income, there are rarely loud calls for a wholesale reform of such tax regimes. What about real estate taxes? The government tweaks the system to put out the “fire” when home prices soar, and modifies it to stimulate the market when the economy stagnates. Sometimes, the catchphrase of “tax normalization” is used as a plausible justification.

There are not many precedents of policy objectives being achieved through tax reform. Professor Lee Dongsik of Kyungpook National University School of Law pointed out, “It is natural, and not something to criticize, for the government to intervene in an overheated real estate market. However, in such cases, attempts to rapidly achieve anything through tax policies should be approached with great caution.”

Ongoing debates, exacerbated by political strife over real estate policy between the ruling and opposition parties, are also wasteful. Since the tax reform plan was released on August 4, by now—about two weeks later—over 7,500 comments have been submitted during the public notice period for the amendment to the Comprehensive Real Estate Holding Tax Act. It is difficult for thousands of submissions to be properly reflected. So far, the government has shown no signs of trying to incorporate public opinion regarding real estate taxation in this reform plan. Instead, they have decided to leave it as is for now, focusing on making changes during the discussion in the National Assembly.

Regardless of intent, even tax experts find the current reform proposal so complicated and in need of authoritative interpretation that it is hard to give it high marks. Good tax policies should place primary emphasis on taxpayer acceptability. Professor Lee stated, “Rather than unilaterally enacting bills with a strong political bias, it is important to establish long-term policies that can be accepted no matter which party takes power. Only policies like this can foster a real estate tax system that gains market trust and curb speculative market forces.”

Choi Daeyeol, Construction and Real Estate Department

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