In South Korea, property tax is one of the most controversial and sensitive topics for both politicians and citizens. Since real estate prices and related taxes involve the bulk of individual assets, even a slight policy change, especially regarding taxation, tends to touch off heated disputes.
In particular, the comprehensive real estate holding tax -- an additional tax burden imposed on owners of pricey houses -- is a hot-button issue, since major parties have long exchanged attacks at each other over its supposed positive or negative effects since it was introduced in 2005.
Last week, another round of political gestures over the controversial tax played out, raising hopes that the burdensome tax system might be softened again, especially for those who own only a single house.
On Wednesday, Park Chan-dae, floor leader of the main opposition Democratic Party of Korea, proposed that those who own a single house and actually live there should be exempt from the comprehensive real estate holding tax, no matter how expensive their house may be.
Park’s proposal is a bold one since the tax in question is currently levied on those who own a single house valued at more than 1.2 billion won ($875,200), based on the annual state-assessed land prices. He was apparently appealing to single-house owners without speculative purposes, many of whom feel the extra tax system should be focused more on those who engage in speculative property investments by owning multiple homes in order to make profits.
Park’s idea signaled a significant shift in the policy direction of the Democratic Party, which has promoted the new property tax policy initiated under the liberal Roh Moo-hyun administration and strengthened by the previous Moon Jae-in administration. Moon raised taxation rates related to real estate properties in a bid to tame the rising property prices.
But the Moon administration’s attempt was not successful. Even though Moon announced a total of 17 real estate policy measures during his term, average housing prices nationwide jumped 23.9 percent in five years, with the upmarket Gangnam district in Seoul soaring 64.2 percent.
Democratic Party leaders are well aware that the past liberal administrations’ heavy property tax system is not only a bewildering controversy but also a political liability. Conservative critics are quick to mount offensives by claiming that the comprehensive real estate holding tax is the main reason for “tax bombs” on the public.
President Yoon Suk Yeol, for instance, slammed the Moon administration's taxation burden on property owners two days before the April 10 parliamentary election, saying that the total amount of tax imposed on Korean property owners doubled to 10 trillion won in 2022, from 5 trillion won in 2018.
In late 2017, the Moon administration claimed that only 2 percent -- around 370,000 -- of the nation's 18.5 million households would be subject to the comprehensive real estate holding tax. But that projection was inaccurate, because housing prices continued to soar in the following years, pushing the number of homeowners subject to the additional tax to 1.22 million in 2022.
But the Democratic Party is yet to determine its stance on the comprehensive real estate holding tax. On Thursday, Jin Sung-joon, chief policymaker, said Park’s proposal about exempting single-house owners was just “his personal opinion,” adding that there was no review of the policy within the party. This suggests that the leadership of the main opposition party remains cautious about overhauling the “punitive” tax.
Indeed, Park’s proposal has a serious problem. According to his plan, an owner of a single house in Gangnam valued at 2 billion won is exempt from the tax while a household with two homes, whose total value is 1 billion won, has to pay the burdensome extra property tax, leading to a dispute about unfairness.
To address the thorny taxation issues, both the government and the rival parties should explore ways to simplify the property tax system and come up with measures to lessen the burden on homeowners in the long term.
