Student Corner Need to Strengthen Real Estate Tax
By Jeong Deok-jong
The Constitutional Court judged the comprehensive real estate tax partly unconstitutional on Nov. 13, 2008. Thus, the Korean government planned to refund already-paid tax to people and decided to raise the criteria up to 900 million instead of 600 million won.
Comprehensive real estate tax has been imposed on owners with properties worth about 600 million won, starting from 2005.
Tax revenue in 2007 was 205 trillion won, of which comprehensive real estate tax was 2.4 trillion won, making up just 1 percent of the total and causing severe controversy.
Although some people support the tax’s abolition, I cannot agree with comprehensive real estate tax abolition for the sake of some reasons.
At first, opponents of real estate tax abolition say that the concept of comprehensive real estate tax is against economic rules. In other words, the real estate tax restrains the free transaction of real estates. Because people should pay extra tax when the sum of real estate is above 600 million won, they may hesitate about buying.
On the contrary, I think that such a state - ment ignores the stability of the real estate market. If compre - hensive real estate tax is abolished, government has difficulty in controlling the cost of land. Government cannot also prevent speculation through the tax.
Moreover, comprehensive real estate tax is an optimal tax policy for imposing tax on the wealthy. Although the rich, like doctors, lawyers, entertainers or businessmen, can hide their income, they cannot conceal real estate such as land and buildings. In other words, keeping secret real estate is more difficult than hiding income.
Next, opponents also claim that comprehensive real estate tax is invalid because the tax is imposed twice on unearned income. Real estate holders should pay real estate tax on their property, at first to the government.
Then, holders should pay comprehensive real estate tax once more, even when the price of real estate increases by market activity ― though not through the will of holder.
In addition, some people assert that rich people who have a number of properties can reduce their tax through this new policy, because the criteria of tax may raise up to 900 million won, not 600 million won.
However, the tax burden of ordinary people who don’t have much real estate may increase instead, according to Won Hyeyoung, a representative of the Democratic Party. Additionally, Park Byeongseug, of the same liberal party, said, “Trying to stimulate the economy by easing the real estate is a very dangerous idea.”
Furthermore, government can get more revenue from comprehensive real estate tax. Local government can get enough revenue by imposing a tax on the rich.
The final argument advanced by opponents of comprehensive real estate tax is that it restrains the fundamental right of people. For instance, a portion of people who have luxury houses but don’t have enough money cannot pay the tax and cannot move house. In other words, owners cannot sell a house if they delayed paying.
However, if comprehensive real estate tax is abolished, sense of incongruity arises between the rich and the poor. Some experts also point out that the comprehensive real estate tax abolition is for the rich only. This looks like the foolish policy, which sacrifices a lot of ordinary people for a small number of the rich.
Nearly 98 percent of people should pay tax to complement reduced tax ― if comprehensive real estate tax, imposed on only 2 percent of Koreans, is abolished.
Additionally, the number of those who have expensive houses who cannot pay the tax is remarkably small. Thus, the statement that this tax is against fundamental rights is wrong.
The Constitutional Court judged it partly unconstitutional. But comprehensive real estate tax should be retained because government can plug the gap between rich and poor with it.
In Korea, rich people have evaded taxes using illegal means until now while ordinary people have paid up. In this respect, it is a proper approach to tax the rich.
Although tax evasion by the rich has been reduced by a sophisticated tax system, the correct application is still far off. Therefore, comprehensive real estate tax should not be abolished.
Jeong Deok-jong is a sophomore at the Information and Communication University school of IT business in Daejeon.