A claim has been raised that a real estate tax system focused on "holding," not actual occupancy, is deepening asset polarization through a "smart single unit." Even if a person owns one home, the argument is that the tax benefits should be concentrated on real estate for end use rather than investment by tightening tax-exempt conditions such as overhauling the special long-term holding deduction.
On the 23rd, a roundtable titled "The paradox of a smart single unit, plans to normalize the real estate tax system" was held at the National Assembly Members' Office Building in Yeouido, Seoul. At the event, Sejong University Professor Lim Jae-man, who delivered the keynote presentation, said the tax system needs to be reformed by lowering real estate transaction taxes and raising holding taxes. Lim, known as part of President Lee Jae-myung's advisory group on real estate policy, is serving as the civilian chair of the reform committee for the Korea Land & Housing Corporation (LH) in the current administration.
Lim said, "The taxes system has, in some respects, reinforced rather than eased asset concentration and intergenerational inequality," and noted, "Korea's effective holding tax rate is very low, while in the case of capital gains tax it looks as if efforts are being made to collect less tax."
◇ Tax-exempt conditions for single-home owners should be tightened
As a plan to reform the real estate tax system, Lim proposed integrating capital gains tax into comprehensive income tax. He also suggested overhauling the capital gains benefits for single-home owners based on requirements such as long-term occupancy and within a certain lifetime capital gains amount or number of transactions, and separating holding taxes on land and buildings while setting the land tax rate higher than the building tax rate.
In particular, Lim stressed that preferential treatment for a smart single unit should be limited to actual occupancy. He also mentioned the need to overhaul the structure of the special long-term holding deduction, which provides high benefits based solely on the holding period.
Lim said, "Most countries design their systems around actual occupancy requirements, but here the benefits are concentrated on holding itself," adding, "We are granting the same preferential treatment for a smart single unit to both holding and occupancy, but shouldn't we move in a direction that grants benefits only for actual occupancy?" Lim continued, "There are many variables for holding tax standards—whether to base them on the number of dwellings or on value, and whether the area is a regulated area or not," and added, "There needs to be in-depth discussion on simplifying the tax system."
At the roundtable, some also argued that even for one household with one home, tax-exempt benefits should be reduced depending on the conditions. Even if the owner has one home, if the dwelling does not meet certain requirements such as price or length of occupancy, there is a possibility that tighter tax-exempt conditions will increase the tax burden.
Kim Hyun-dong, a business administration professor at Paejae University who served as a discussant at the roundtable, said, "We need to break away from the dogma of tax exemption for one household with one home," adding weight to the argument that even single-home owners should face tighter tax-exempt conditions. Kim said, "We are stuck in the dogma that a single home must be protected," and added, "Other countries do protect single-home owners, but their tax-exempt conditions are strict." Kim said, "In Korea, if you just live there for two years you get tax-exempt benefits, which is favorable to single-home owners," adding, "In the United Kingdom, a household with one home must literally live in the house without renting it out to receive benefits. Shouldn't we move away from the existing policy as well?"
◇ Finance ministry says "mid- to long-term tax reform… research under way"
Yoon Su-hyun, Director of the Property Tax Division at the Tax Policy Office of the Ministry of Finance and Economy, said at the roundtable, "We believe it is more desirable to use taxes for their original role of securing national finances rather than as a short-term tool to respond to the real estate market," adding, "We are focusing on creating a desirable real estate tax system over the mid to long term," as a cautious position.
Director Yoon said, "We are considering reasonable improvements to stabilize the housing market and reallocate resources concentrated in real estate," adding, "If possible, we are considering shifting tax benefits from investment-purpose real estate to end-use purposes and supporting taxation for 'second homes' in provincial dwellings rather than investments in designated adjustment areas." Yoon added, "We are considering the burden of holding and transaction taxes from a global standards perspective."
The Ministry of Finance and Economy plans to begin full-scale tax reform after receiving the results of a research project on the direction of real estate tax reform in Dec. this year. However, if short-term measures are needed for market stability, they are expected to be included in the July tax reform plan.