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The government and the ruling Grand National Party yesterday agreed to increase the value of real estate subject to the comprehensive real estate tax to more than 900 million won (US$791,904). Currently, the tax is levied on households owning real estate valued at 600 million won or more and was legislated to curb property speculation. If the agreement is written into law, six out of 10 people subject to the comprehensive real estate tax will be exempt from it. Under the plan, the taxable amount would be lowered, meaning those obliged to pay the tax will pay less tax overall.

The agreement was reached at a meeting held yesterday with senior officials from the government and the GNP, including Yim Tae-hee, the GNP’s chief policymaker, Seo Byeong-soo, the chairman of the National Assembly committee for planning and finance, Choi Kyung-hwan, the head of the GNP’s policy coordination committee and Strategy and Finance Minister Kang Man-soo. In addition to easing the tax rules, the government and the GNP agreed to lower the comprehensive real estate tax rate by more than 66 percent.

The government and ruling party have earned heavy criticism for the plan, which many say is aimed at benefiting rich people who own high-priced apartments in Seoul’s affluent Gangnam district. As of 2007, 56.4 percent of those obligated to pay the comprehensive real estate tax live in three districts southern Seoul: Gangnam, Seocho and Songpa. If people who live in the district of Bundang, south of Seoul, are included the figure rises to 65.5 percent. Critics say that retooling the comprehensive real estate tax was aimed at pleasing wealthy home owners in those areas.

If the new tax rules gain National Assembly approval, 58.8 percent of those required to pay the comprehensive real estate tax will be exempted from it. In addition, if the tax reduction bill is also passed, people owning real estate valued more than 900 million won will pay less tax altogether because the taxable amount will also be reduced. Under the current taxation system, the comprehensive real estate tax is levied on real estate valued at over 600 million won; the comprehensive real estate tax paid by a taxpayer owning real estate valued at one billion won is 2.6 million won. If the new tax rules gain National Assembly approval, the tax will be levied on real estate valued at over 900 million won and the same person will pay 550,000 won in tax.

What’s more, the government said on September 1 that it would cut the estimated real estate value subject to tax from the current 90 percent to 80 percent, while also cutting the year-on-year tax increase cap from the current 300 percent to 150 percent. This would double the benefits to the owners of high-priced homes in the affluent districts in Seoul.

The government plans to announce the revisions today. The final plan is likely to include a revision in the assessment standard for the comprehensive real estate tax and the tax rates therein.

Given that the government plans to allow elderly and retired people to pay less in comprehensive real estate tax, the comprehensive real estate tax system will largely become ineffective. As a result, easing the comprehensive real estate tax was seen as the first step in abolishing the tax in the future.

According to 2007 data by the National Tax Service, a total of 379,000 people are subject to the comprehensive real estate tax. Of these, 223,000 people own a home valued at between more than 600 million won and less than 900 million won.

When the administration of former President Roh Moo-hyun introduced the comprehensive real estate tax in 2005, it had originally planned to levy the tax on people owning real estate valued at more than 900 million won. However, with real estate prices continuing to rise and public opinion growing increasingly negative, the Roh administration tightened the tax rules and changed the amount to 600 million won.

The September 22 agreement made by the government and the GNP takes the amount taxable back to the original 900 million won.

The government and the GNP agreed to put on hold another plan to calculate the tax based on the amount of real estate held per individual, rather than per household to wait for a ruling from the Constructional Court, which is deliberating on the legality of the plan.

Jeon Gang-su, a professor of real estate at the Catholic University of Daegu, said that it appears the government intends to gradually incapacitate the comprehensive real estate tax and eventually scrap it because the government cut the number of people subject to the tax at a time when it is also putting the brakes on raising ownership taxes introduced by the previous administration, which it did by freezing the assessment standard for the comprehensive real estate tax on September 1.

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