A tax law amendment has been introduced to abolish the fair market value ratio (fair ratio) used in the comprehensive real estate tax to normalize the real estate market. The fair ratio is a kind of "discount rate" applied to the officially assessed value of dwellings. The current fair ratio is 60%, meaning taxes are levied on 60% of the assessed value. The amendment would scrap this discount system entirely. Under the Moon Jae-in administration, the fair ratio was to be raised to 100% so taxes would be charged on the assessed value as is. That has the same effect as abolishing the fair ratio.
According to the National Assembly on the 12th, Yoon Jong-o of The Progressive Party on the 8th sponsored a bill to amend the comprehensive real estate tax law with this content. The list of co-sponsors includes Lee Kwang-hee and Lee Joo-hee of the Democratic Party of Korea, as well as lawmakers from the Rebuilding Korea Party and The Social Democratic Party of Korea. The amendment's statement of purpose notes that "the comprehensive real estate tax has lost its original function due to factors such as a narrower scope of application, lower rates, excessive benefits for one household with one dwelling, and de facto tax cuts from overapplying the fair ratio," adding, "Normalizing the comprehensive real estate tax is an urgent task to recoup unearned income and achieve fairness in taxes."
The comprehensive real estate tax is calculated by subtracting the basic deduction (900 million won, or 1.2 billion won for one household with one dwelling) from the officially assessed value of dwellings, multiplying by the fair ratio to get the tax base, and then applying the bracketed tax rates. Article 8, Paragraph 1 of the amendment deletes the phrase in the definition of tax base that reads "an amount obtained by multiplying by the fair ratio set by presidential decree in the range of 60 out of 100 to 100 out of 100, taking into account trends in the real estate market and fiscal conditions." The tax base would become "assessed value − basic deduction."
For example, for one household with one dwelling with a current assessed value of 2 billion won, the tax base is 480 million won, which is 800 million won after excluding the basic deduction of 1.2 billion won, multiplied by the 60% fair ratio. If the fair ratio is abolished, the tax base increases to 800 million won. Accordingly, the rate also rises by 0.3 percentage points, from 0.7% to 1.0%, resulting in a higher tax bill. On a simple calculation, the comprehensive real estate tax (excluding the deduction for overlap with the property tax) roughly doubles from 2.76 million won to 5.6 million won.
Successive administrations have flexibly adjusted the tax burden by changing the fair ratio in line with policy direction. The fair ratio was maintained at 80% from its introduction in 2008 until 2018, then rose to 95% in 2021 under the Moon administration. It was later lowered to 60% under the Yoon Suk-yeol administration.
In the current administration, the idea of abolishing the fair ratio is also gaining traction. At a Feb. policy forum co-hosted by Yoon and Jin Sung-joon of the Democratic Party of Korea titled "The paradox of the 'one smart home': plans to normalize real estate taxation," Lim Jae-man, a professor of real estate at Sejong University, proposed abolishing the fair ratio. Lim, known as Lee Jae-myung's "real estate strategist," helped sketch Lee's real estate policies not only in the 21st presidential election but also in the previous 20th presidential race.
With the sharp rise in officially assessed dwelling values expected to push the holding tax burden up by more than 50% from a year earlier in some cases, there are concerns that scrapping the fair ratio would significantly increase the burden on high-priced dwelling owners. Park Hap-soo, an adjunct professor of real estate at Konkuk University, said, "If the fair ratio is abolished, more high-priced dwellings will exceed the cap on comprehensive real estate tax burdens (150% of the previous year)," adding, "In the first instance, multi-homeowners with high-priced dwellings will be hit hardest, but ultimately tenants' burdens could increase."
Some also argue that the fair ratio's positive function could be undermined. Seo Jin-hyeong, a professor of real estate law and administration at Kwangwoon University, said, "The fair ratio has a positive function of keeping tax burdens at appropriate levels. If it is abolished, tax burdens could rise sharply, so I believe it is preferable to adjust the fair ratio according to circumstances, as past administrations did." A real estate expert who requested anonymity said, "If the fair ratio is abolished, the tax burden could rise sharply, leading to a tax revolt and negatively affecting the ruling party's bid to retain power," adding, "Even under the Moon administration, a push to abolish the fair ratio surfaced, but the course shifted to phased alignment for this reason." In 2018, Park Ju-min of the Democratic Party of Korea introduced an amendment to the comprehensive real estate tax law to abolish the fair ratio and raise the tax base.
Meanwhile, the amendment introduced by Yoon adds a primary residence requirement to the special long-term holding deduction for the comprehensive real estate tax. Currently, holding for at least five years allows a tax credit of up to 50%, but the amendment changes this to at least two years of primary residence and expands the deduction rate to up to 60%. It also changes the maximum threshold of the tax base for comprehensive real estate tax on land from "over 4.5 billion won" to "over 9.7 billion won," and raises the rate from 10%–30% to 10%–40%.