With this tax reform, the comprehensive real estate tax is estimated to collect 9.3 trillion won more over the next five years than under the current system. Most of that amount is expected to be collected from owners of high-priced dwellings in Gangnam, Seoul, and 7 trillion won of it is projected to be allocated to non-capital regions. Although the comprehensive real estate tax is a national tax, the entire amount is distributed to local governments as a real estate grant-in-aid.
◇ Of the "apartments priced at 3.2 billion won or more" that will pay more comprehensive real estate tax, 97% are in Seoul
According to the Ministry of Economy and Finance on the 5th, the reform of the comprehensive real estate tax is expected to raise an additional 800 billion won in 2027, 1.9 trillion won in 2028, 2.2 trillion won in 2029, 2.2 trillion won in 2030, and 2.2 trillion won in 2031, totaling 9.3 trillion won over the next five years. The comprehensive real estate tax is the item expected to increase the most due to this year's tax reform.
The government did not separately disclose a regional breakdown of the expected increase in the comprehensive real estate tax, but most of the increase is likely to occur in Seoul. The main targets of this tax hike can be summarized as "high-priced dwellings exceeding a taxable base of 600 million won (market price of 3.2 billion won)." According to Real Estate R114, as of the end of July, 97% of apartments nationwide priced at 3.2 billion won or more are in Seoul. As of last year, 56.6% of comprehensive real estate tax was collected with Seoul as the place of taxation.
◇ Seoul paid 57% of the comprehensive real estate tax last year but received only 9% in allocation
The places where the expected increase in the comprehensive real estate tax will mainly be used are outside Seoul, in non-capital regions. Although the comprehensive real estate tax is a national tax, it is classified as a "real estate grant-in-aid" and is allocated entirely to local finances. Depending on fiscal conditions, social welfare needs, low birthrate responses, and the size of real estate holding taxes (property tax), it is distributed to basic local governments at the si, gun, and gu level.
According to the Ministry of the Interior and Safety, as of last year, 24.6% of the comprehensive real estate tax was allocated to the capital region and 75.4% to non-capital regions. Assuming last year's allocation ratio holds, 7 trillion won of the more than 9 trillion won increase would go to non-capital regions.
By metropolitan government last year, Gyeonggi (10.44%), North Gyeongsang (10.29%), and South Jeolla (10.2%) received the most. Seoul received 9.5%. Among basic local governments, the allocation rates were East Daejeon (0.567%), Yeongdo, Busan (0.56%), South Daegu (0.555%), Central Daejeon (0.542%), Michuhol, Incheon (0.54%), and North Busan (0.537%).
Meanwhile, by autonomous district within Seoul last year, the allocations were Gangnam (0.507%), Nowon (0.47%), Eunpyeong (0.438%), Gangseo (0.438%), Gangbuk (0.423%), and Jungnang (0.419%), in that order. Yongsan, Seocho, and Songpa are districts where high-priced dwellings are concentrated, but their comprehensive real estate tax allocations ranked 3rd, 9th, and 12th, respectively. That is because the comprehensive real estate tax is not structured to return funds in proportion to where they were collected, but to distribute them to areas with high fiscal and welfare needs.
◇ "Why are other regions handing out favors with comprehensive real estate tax paid by our local residents?"
Concerns are being raised because the regions where the comprehensive real estate tax is collected differ from those where it is allocated. The real estate grant-in-aid is a general resource with no fixed use. Even if it is used to fund cash welfare programs entirely unrelated to real estate, there is no legal issue. That is why some say, "Why are other regions handing out favors with comprehensive real estate tax paid by our local residents?"
Accordingly, debate continues over how comprehensive real estate tax allocations are used. At the "national grand debate on real estate policy" chaired by President Lee Jae-myung on the 23rd of last month, one view was that "the resources secured (by strengthening the comprehensive real estate tax) should be used in the housing sector, such as for public dwellings." President Lee also said, "That is what I want to do." However, for the central government to directly use comprehensive real estate tax funds for specific areas such as public dwellings, the current local grant-in-aid laws, which require the entire tax to be granted to local governments, would need to be amended.