The country`s wealthy look to be in for a windfall. The Constitutional Court ruled yesterday that a property tax initiated by then-President Roh Moo-hyun on the richest households is partially unconstitutional.
The landmark ruling heralds a change in the four-year-old tax regime that has prompted social and political controversy.
"There is no reason to view each family member`s property as shared by all household members. The tax also puts a married couple at a disadvantage compared to those not married," said a court official.
Supporters of the tax system have said that many previously attempted to evade taxes by inappropriately sharing real-estate properties among family members to stay beneath the minimum taxation bar.
The ruling is expected to prompt taxpayers to call for refunds in droves. They have criticized the "discriminatory and punitive" nature of the tax system regarding multiple-person households.
The comprehensive real-estate tax levied an extra fee on the combined sum of real estate held by all members in a household.
About 400,000 people, who have paid the tax since 2005, are expected to be eligible for refunds whose total amount is estimated at 1 trillion won ($720 million), according to the National Tax Service.
The ruling paves the way for the government to cut taxes on high-end homes - benefiting only the richest members of society. The plan involves raising the minimum tax base from 600 million won to 900 million won, which is expected to slash the number of households subject to the tax from 387,000 to 161,000.
The government believes the plan will help revitalize the economy as money will trickle down from the rich, while opposition parties have criticized it as favoring only the wealthy.
The court ruled on seven constitutional petitions filed since December 2006.
The tax regime targeting expensive and/or multiple homeowners was introduced in 2005 by the Roh Moo-hyun administration to curb real estate speculation due to soaring housing prices. Roh had also emphasized a fairer distribution of wealth.
The court also ruled that imposing the tax on those who own a single home for a long time is unconstitutional and recommended a revision of the tax law by Dec. 31, 2009.
Opponents of the tax system have complained that, due to the tax, the owner of a single home without any other properties or sources of income could have to sell their home to pay the taxes.
The court, however, ruled against those who said that the tax is too high and violates their property rights, as it is imposed when profits have yet to come into their pockets in the form of hard cash, despite the increase in the value of their homes.
The court also said that it is not double taxation. Opponents have complained that they have to pay the capital gains tax levied on their real estate sale without any deduction from the already-paid comprehensive real estate tax.
The governing Grand National Party said that the ruling against the family-based taxation cast off the "populist" real-estate policy of the Roh government.
"The ruling proves that anti-market economic policies cannot comfort citizens," said GNP spokesman Yoon Sang-hyun.
GNP chief policymaker Yim Tae-hee indicated that the party will seek to change the government plan to raise the minimum tax floor as the individual-based taxation will significantly increase the floor.
The main opposition Democratic Party expressed regret as the ruling came despite its calls to delay it due to the ongoing parliamentary inquiry into an alleged attempt by Finance Minister Kang Mans-soo to influence the court ruling.
Some civic groups denounced the ruling, saying it upends hopes for real-estate market stabilization.
By Song Sang-ho