Gov't set to revise property tax plan amid public backlash, ruling party pressure

The ruling party and government have agreed to ease the simultaneous increase in property holding and capital gains taxes for non-resident single-home owners, party officials said Monday.

The agreement puts the government’s real estate tax reform package, unveiled on Aug. 3, back under review just three weeks after its announcement.

“The government will broaden the circumstances under which periods of nonresidency can be recognized as residence when justified, while listening to public concerns and seeking a more reasonable solution,” Finance Minister Koo Yun-cheol said during his appearance before the National Assembly.

The reconsideration comes amid growing resistance within the ruling party and mounting public complaints over housing policies, particularly in Seoul. With controversy over real estate policies emerging as one factor behind President Lee Jae Myung’s declining approval ratings, the presidential office has also signaled support for revisiting the plan. Specific revisions could be outlined as early as this week.

Under the Aug. 3 proposal, the basic deduction for non-resident single-home owners under the comprehensive real estate holding tax would be lowered to 900 million won ($652,000) from 1.2 billion won, while the cap on annual increases in their tax liabilities would rise to 200 percent from 150 percent.

Complaints have also been raised over the government’s proposed exceptions for non-resident homeowners, with critics arguing that they are too limited to reflect the various circumstances that may force people to live elsewhere. Under the initial plan, up to three years spent away from the property would count toward the residency requirement if owners had lived there for at least a year before moving due to education, job relocation, medical treatment or overseas stays.

However, the rules do not cover other circumstances such as child care, raising concerns about unintended tax burdens.

The debate over the government’s tax overhaul accelerated following the election of former Prime Minister Kim Min-seok as the new leader of the ruling Democratic Party of Korea on Aug. 17.

Kim, who had criticized the proposed reforms as effectively amounting to a tax increase, raised key objections during a high-level meeting between the ruling party and the government on Sunday. He urged the government to eliminate blind spots by recognizing legitimate reasons for non-residency.

“We must broadly recognize various inevitable reasons for non-residency in reality while eliminating blind spots,” Kim was quoted as saying during the meeting.

The ruling party and government have yet to agree on a final draft, but the main goal is to ease the tax burden on non-resident single-home owners without abandoning higher taxes on ultra-high-value homes.

For the comprehensive real estate holding tax, options include retaining the current 1.2 billion won basic deduction or eliminating the distinction between resident and non-resident homeowners and raising the deduction to 1.4 billion won, the same level as for owner-occupiers

For capital gains tax, proposed changes are focused on retaining the long-term holding deduction.

The presidential office has also indicated that it is open to reviewing the proposed changes.

“Cheong Wa Dae will listen more closely to concerns from the field and seek to improve the policy’s completeness and public acceptance,” presidential chief of staff Kang Hoon-sik said.

The government is expected to discuss potential revisions with the ruling party this week before submitting the revised tax reform bill to the National Assembly by Sept. 3.