The ruling Democratic Party of Korea is belatedly rushing to pass its bill to cut the real estate transfer income tax for homeowners without second homes during the ongoing parliamentary session.
The party adopted a platform in June to ease the real estate transfer income tax and proposed a bill in August to expand the exemption of the tax to houses owned by persons without second homes from 900 million won to 1.2 billion won ($765,000-$1.02 million) in terms of sale price. It put the bill on the back burner, but now suddenly seeks to process it.
The party abruptly became responsive to taxpayers’ sentiment on comprehensive real estate holding tax, as it looks likely to worsen. They are scheduled to receive related tax bills from Nov. 22. The tax is imposed on high-priced housing annually and should be paid from Dec. 1 to 15.
The tax is expected to be unprecedentedly heavy this year because both housing prices and related tax bases soared. To make matters worse, tax rates were also raised.
With popular fury simmering over skyrocketing property prices, the party lifted the minimum threshold for comprehensive real estate tax from the existing 900 million won to 1.1 billion won for homeowners without second homes in late August. Still, the tax is projected to be nearly double that levied last year for a significant number of people who own only one home in Seoul.
The average price of an apartment in the capital in October rose by 200 million won to 1.2 billion won from a year earlier. If a person owns two homes in Seoul’s pricy Gangnam, the tax on them could exceed 100 million won, more than double the nation’s median wage.
The Ministry of Economy and Finance forecasts the comprehensive real estate holding tax will increase 62 percent from last year to 5.1 trillion won. The number of taxpayers will rise by 100,000 to 765,000.
Taxes are an important election issue that can mean the difference between victory and defeat. The Democratic Party is said to be all ears to the possible deterioration of voter sentiment on the comprehensive real estate tax, particularly in the capital.
The Moon Jae-in administration’s real estate policy failures caused pain to people both with and without homes. Those who want to buy their first homes are frustrated at the surge in housing prices, while homeowners agonize over how to raise money to pay heavy taxes. Those who face a sharply increased comprehensive real estate tax grumble that they are effectively paying rent to the state.
The party’s rush to ease the transfer income tax burden is the right direction in that it may stimulate house sales that have been atrophied by heavy taxes and a cobweb of regulations. The problem is the party dealing with tax issues whimsically without reviewing them carefully. It is politicizing taxation.
Lee Jae-myung, the Democratic Party’s presidential nominee, pledged to create a “land possession tax” to be imposed on every land owner each year. He said it is foolish for those below the top 10 percent to oppose the tax. He is dividing people to win over the 90 percent majority.
After the outbreak of the Daejang-dong land development scandal, in which a few speculators reaped astronomical returns on their modest investments, voices against easing the transfer income tax gained traction within the party. Its opposition to the reduction of real estate taxes for the reason that it will benefit the rich is still strong. Regarding the comprehensive real estate holding tax, the party promised to ease the burden before the 2020 general election. However, after it won a landslide victory, the promise fizzled out.
The current regime continues to ignore business circles’ demand for a revision to the harsh inheritance tax, whose rate is second highest in the world. The government is aware of the necessity to solve inheritance tax problems, but hesitant in lowering the inheritance tax rate. It taxes a small number of certain voters heavily, while exempting a majority of voters from the tax.
Tax politics coupled with populism will further distort housing policies and erode popular faith in the fairness of taxation.
By Korea Herald (firstname.lastname@example.org