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| Rep. Yoo Gyeong-joon of the main opposition People Power Party speaks during a finance committee meeting at the National Assembly, Oct. 14, 2020. Korea Times file |
Korea's real estate-related tax 3rd-highest among OECD
By Lee Kyung-min
Wealth inequality measured by asset values has worsened over the past few years, despite ― or precisely due to ― heavier taxes on owners of expensive homes, a key demand control measure implemented to curb real estate speculation, an opposition party lawmaker said Monday.
The Comprehensive Real Estate Tax, imposed on housing with an officially appraised value of over 900 million won ($816,000), along with tightening lending rules, have resulted in a failed real estate policy combination that led to the price of Seoul's apartments to double over the past three years.
Rep. Yoo Gyeong-joon of the main opposition People Power Party said a prompt, complete course correction is needed for the floundering policy to achieve the intended objectives of property price stabilization, equitable taxation and balanced and sound development of the national economy.
The recommendation reflects concerns that an expected further rise in tax rates on owners of multiple expensive properties this year will push up the rank of Korea that came in third among OECD countries in 2018 in terms of real estate-related tax-to-GDP ratio.
Worsening indices
Yoo said what he has termed the Gini coefficient for real estate increased to 0.513 in 2020, up from 0.507 in 2019. This is a further jump from 0.491 in 2017.
The figure that measured net assets ― excluding debt ― increased to 0.602 in 2020, up from 0.584 in 2017. Figures that included debt also rose to 0.544 in 2020, up from 0.531 in 2017.
These, according to a former Statistics Korea head, are a variation of the Gini coefficient, a measure of income distribution across a population. It is based on data from a quarterly household financial welfare survey. The coefficient ranges from 0 to 1, with 0 representing perfect equality and 1 representing extreme inequality.
"The heavier real estate tax is deepening inequality, the opposite outcome of the policy objective," he said.
Separate data from his office showed the burden of real estate-related tax is the third-heaviest among OECD countries. They include taxes for retaining and trading real estate, capital gains tax, inheritance tax and gift tax.
The combined taxes amounted to 4.05 percent of Korea's nominal GDP, over double the OECD average of 1.96 percent.
The figure was highest in Britain (4.48 percent) followed by France (4.43 percent). The U.S. ranked fourth (3.97 percent), whereas Japan ranked 11th (2.59 percent). Canada ranked sixth (3.45 percent), Australia ninth (2.78 percent) and Spain 14th (2.27 percent.
When measured only by taxes for retaining property in proportion to GDP, the ratio for Korea was 1.2 percent in 2020, exceeding the OECD average of 1.07 percent. The figure remained below the OECD average at 0.92 percent in 2019, a further jump from 0.82 percent in 2018.
Korea is, he said, no longer a country where retaining real estate isn't costly. The claim is in large part explained by a spike in overall tax rates and what the government calls a "fair market rate" of 95 percent in 2021, up from 90 percent in 2020.
The fair market rate is used to set the amount of Comprehensive Real Estate Tax calculated after the officially appraised housing value minus 900 million won ― the maximum amount deductible ― multiplied by 2021's rate of 95 percent.
This seeks to revisit previous remarks made by President Moon Jae-in last August when he said Korea's tax rate on property is lower than its global peers, citing greater government intervention in tax policy revision is common in other countries.
Korea's tax levied progressively on properties scattered across the country lacks reason, he added, saying no other country in the world has what he considers a punitive system.
The heavy tax cannot be classified as a wealth tax, given such taxes in France are imposed after deducting debt.
"A major overhaul is needed to update the current absurd taxation scheme, an effort that will begin only with recognizing the failure of the dozen botched real estate policies that spiked housing prices over the past few years," he added.
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