Problems with Comprehensive Real Estate Tax: Heavy Levy for Multiple Home Owners

As the real estate tax system changes begin next year, Kim, who is newly buying a 32 pyong unit (tax standard value of 350 million won) at the Hyundai Apartment complex in Guui-dong, Gwangjin-gu, Seoul will have to pay 621,000 won in property tax.

Park, who is already living in the same sized unit in the same apartment complex, will pay 265,000 won, approximately 50 percent more than this year’s property tax of 177,000 won. Kim will have to pay for the entire property tax set by the tax rate since he has never paid a tax for the newly purchased apartment before. Since there is no target to be compared to, the 50 percent maximum increase for real estate tax will not be applied.

The same is applied when a new house is purchased. According to “Real Estate 114,” a company that provides real estate information, some 310,946 households next year and 272,142 in 2006 will move into new apartments.

A person possessing a house with a market value of 900 million won will have to pay 1.99 million won in property tax. However, a person with three houses, each valued at 300 million won, will be levied a much lower amount of 1.47 million won even though the total amount in property possession is the same as the person above. In the case of property tax, it is levied by house value and not by the total amount in possession of an individual, and a higher tax rate is applied to houses with higher prices.

Accordingly, some are pointing out that the real estate tax reform is a “wealth tax” aimed at a “specific class” in a “specific area” where expensive houses are located, such as the Gangnam area in Seoul. It is being raised that the “real estate tax reform plan” set by the government and the ruling party to balance the tax levy, however, is obstructing the balance.

Regarding the fact that the 50 percent maximum increase is not applied to new apartments, Lee Jong-kyu, director of the Tax and Customs Office at the Ministry of Finance and Economy, said, “The government has not found a satisfactory way to solve the problem. It is under examination to find countermeasures,” admitting that there are problems in the real estate tax reform.

Noh Young-hoon, a researcher at the Korea Institute of Public Finance, pointed out, “Many problems are appearing due to the government making tax reform plans behind closed doors and in a hurry.”

Jong sik Kong Ji-Wan Cha kong@donga.com cha@donga.com