Status and Recent Discussion Trends on Real Estate Taxes
This report provides a comprehensive overview of the characteristics and current status of the Korean real estate tax system via an analysis of the real estate tax system including its timeline, taxation status and an international comparison. In addition, the key issues surrounding the comprehensive real estate tax, which is a bill proposal recently submitted to the National Assembly as part of the Real Estate Tax System, and its effect on tax revenues are introduced.
The real estate tax system is composed of the property possession tax and property transaction tax. The possession tax dates back to as far as the Three Kingdoms of Korea, in which the “cho(租)” of the tripartite tax system (租庸調制) was implemented. The transaction tax was introduced in 1927 as land ownership transactions were identified following the land survey project. During economic development in the 1970s, the real estate tax system was utilized as needed by the government to restrict speculation through multiple amendments of relevant laws. Therefore, the system has evolved with greater complexity.
The property tax-related tax revenues of Korea amounted to 38 trillion won in 2016, which accounted for 2.3% of the nominal GDP. Specifically, the revenues consist of possession tax (13 trillion won) and transaction tax (25 trillion won) which is double the amount of the possession tax. The largest tax item in the possession tax is property tax, and among transaction taxes, acquisition tax is the most significant component. Comparing the real estate tax to GDP ratio with other OECD member countries, the proportion of Korea’s possession tax (0.8%) was smaller than that of the OECD average (1.1%) and the proportion of the transaction tax (1.6%) was four times higher than that of the OECD average (0.4%). Meanwhile, the main tax item in the real estate tax system was local tax, and the revenues of the comprehensive real estate tax, which is a national tax, were also fully allocated to local governments. As such, 95% of total real estate tax revenues have been allocated as fiscal income for local governments.
In order to enhance the tax equity on assets, the government submitted to the National Assembly the Tax Code Revision on August 31st, which reinforces the comprehensive real estate tax. When the housing market remained unstable, the 9/13 measure was released which increased the tax rate levied on houses subject to the comprehensive real estate tax. There are a total of 10 real estate tax-related revisions that were either submitted to or proposed by the National Assembly in 2018, including those drafted by the government. In particular, the comprehensive real estate tax can be categorized into four tax increase proposals, three tax cut proposals and two policy mix proposals. In this regard, an overview of the main content of the revisions has been provided, as well as an examination of the subjects of the revised taxes, their effects on tax revenues and policy effect.