Property owners cry foul over growing real estate tax burden

Property owners cry foul over growing real estate tax burden

Some politicians, experts see new measures as ‘double taxation’

By Anna J. Park

As the government sent out real estate tax bills a week ago, those who are subject to pay the tax expressed severe discontent over the sudden increase in their tax burden. While calling the Moon administration’s tax scheme “punitive” in nature, some property owners are attempting to form a tax resistance movement.

The comprehensive real estate tax is levied only upon those who own one home worth more than the market price of 1.6 billion won ($1.35 million) or those who own more than one home worth 600 million won. The scheme, which some have called “a tax on the rich,” was introduced in 2005 to discourage property speculation.

The reason for the massive outcry and resistance from property owners is that the burden from the real estate tax has escalated substantially this year, as the country has not only experienced soaring housing prices during recent years, but also the government has greatly raised the tax rates.

A total of 5.7 trillion won will be levied upon some 947,000 taxpayers under the comprehensive real estate tax. Compared to last year, the number of affected taxpayers has increased by 42 percent and the total tax amount has jumped by a whopping 216 percent.

A civic organization is currently collecting plaintiffs, aiming to jointly file the case to the Constitutional Court. The group ― “Solidarity of Citizens for Filing Constitutional Court Case against the Comprehensive Real Estate Tax” ― said over 2,000 people have expressed their intent to join the lawsuit in just two days since the group started receiving applicants a week ago.

“People from not only Seoul but also from other regional cities are joining the group. The comprehensive real estate tax is an unparalleled tax mistake, because it violates the principle of horizontal equity in taxation by levying a punitive tax on owners of more than one home,” said Lee Jae-man, the head of the group and a former tax official.

“The tax also violates the Constitution as it is considered a double taxation, given that property taxes are already imposed on their homes.”

According to a recent opinion poll by Realmeter, 53.3 percent of survey respondents said they support a change in the current comprehensive real estate tax scheme. Mostly people in their 30s and over 60 showed support for the change, reflecting the particular age groups’ sensitivity toward the government’s real estate policies.

Politicians are also raising their voices on the matter. The main opposition party’s outspoken lawmaker Hong Joon-pyo, who was a major contender in the party’s presidential primary race, argued that the comprehensive real estate tax is a double taxation that violates the Constitution.

“A single item should be taxed once, but the government is imposing taxes on homes with two different taxes ― property tax and comprehensive real estate tax ― which makes it double taxation,” Hong wrote on Facebook. “The comprehensive real estate tax is not so much a tax as plunder.”

Rebuttal from finance ministry

Regarding such criticism, the Ministry of Economy and Finance explained that the country’s tax burden on real estate is not that high compared to other countries. According to a ministry press release distributed in April, Korea’s tax burden on real estate is calculated at 0.16 percent ― based on real estate holding taxes divided by property value. The comparable rate for the U.S. stands at 0.9 percent, followed by Canada at 0.87 percent, U.K. at 0.77 percent and France at 0.55 percent.

“It is difficult to say that Korea’s tax burden on owning real estate is excessive. The ministry will continue to bring about equity in taxation and its justifiable and appropriate application,” the ministry said.

The ministry also defended itself against the accusation of double taxation, saying the property tax and the comprehensive real estate tax are not double taxation, as repetitive items are exempt in determining the taxes. The ministry also argued that the real estate tax contributes to lessening unequal regional development, as the tax collected is redistributed for local governments.

However, experts still view the ministry’s explanation as inadequate and misleading. They point out that the government’s comparison with eight OECD countries in terms of real estate taxation is not appropriate, as the data is from 2018 and does not reflect the sudden increases of both the tax rates that took effect from this year as well as soaring housing prices of recent years.

“A simple comparison with other countries won’t be enough. It is still excessive that the total amount of real estate tax will be tripled in just a year,” University of Seoul professor Kim Woo-cheol said.

“The tax burden compared to housing prices alone might be lower than the OECD average, but when compared to taxpayers’ income levels, it is closer to the OECD average. Thus it is difficult to simplify the matter.”

Some experts also argued that the increased tax burden will trickle down to tenants, thus even renters will be affected by the tax.

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