Ministry to finalize stance on home acquisition tax by August

The government said Monday it will finalize its stance on when and how to lower the acquisition tax rates for home purchases by the end of August as part of efforts to stimulate the prolonged slump in the local property market.

“Consultation is under way among ministries and agencies on the premise that the government will lower the acquisition tax rates in order to normalize the housing market,” the Finance Ministry said in a press release jointly unveiled by the land and Transportation Ministry and the Public Administration Ministry.

The plan comes as the government has been under criticism for not coming up with a unified front on the tax issue, heightening uncertainty for its policy directions tied to the property market, which accounts for a large part of the economy.

The land and transportation ministry supported the idea of lowering the tax, saying that it would help stimulate the country’s property market, but the public administration ministry remained opposed, worrying that a tax cut could erode the revenue for local governments. The acquisition tax is one of their major income sources.

The Finance Ministry, which serves as a control tower for economic affairs, said that it will announce detailed plans for the tax issue by the end of August, one month earlier than its previous timetable.

“We will have a sufficient number of consultations with related agencies, ministries and municipal governments to map out detailed plans by the end of August before submitting them to the National Assembly for approval,” the ministry said.

Policymakers in charge of the tax issue said that they have yet to decide how much of and for how long the tax cut would be provided, emphasizing that additional consultations are required.

But they noted that a tax reduction this time would not be as temporary as those provided before.

“We can say that it would not be temporary, though more talks are required to determine the extent and period of a tax reduction,” Kim Nak-hoe, the head of the finance ministry’s tax affairs department, told reporters during a Q&A.

Asked whether the envisioned tax cut could be applied retroactively for those who have already purchased houses, he said, “The government should have more talks about it, but I think it would be technically impossible.”

Currently, the government imposes a 2 percent acquisition tax on a house valued at 900 million won ($804,289) or less. The rate is 4 percent for a house whose value exceeds the mark.

In the past, the government had lowered the acquisition tax rates as a major tool to stimulate stagnant home transactions, but these reductions were only temporary. Critics say that the impact of such a temporary benefit peters out quickly after the tax-cut period expires.

They are demanding the government make the tax benefit permanent as worries are mounting that the property market might be falling off the so-called transaction cliff following the expiration of the latest tax cut for home purchases in late June. (Yonhap News)