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Some politicians, experts see new measures as 'double taxation'
By Anna J. Park
With the government sending out demands for real estate tax payments a week ago, those subject to them have begun expressing severe discontent at the sudden increase in their tax burden. Calling the Moon administration's tax "punitive," some property owners are even attempting to form a resistance movement.
The comprehensive real estate tax is levied upon those who own one home with a market price over 1.6 billion won ($1.35 million), or those who own multiple homes with each being worth more than 600 million won. The scheme, which some call "a tax on the rich," was introduced in 2005 to discourage property speculation.
The reason behind the massive outcry from property owners is that the burden from the tax has escalated substantially, with the country experiencing soaring housing prices during recent years and the government also greatly increasing the rate in 2021.
Some 5.7 trillion won has been levied on 947,000 homeowners in comprehensive real estate tax this year; and compared to 2020, the number subject to it has increased 42 percent, while the total tax revenue has jumped a whopping 216 percent.
A civic organization is currently collecting plaintiffs to file a joint case with the Constitutional Court. The group ― Solidarity of Citizens for Filing Constitutional Court Case against the Comprehensive Real Estate Tax ― said over 2,000 people had expressed their intention to participate in the lawsuit since it started receiving applicants a week ago.
"Not only Seoul residents but also people from 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, a former tax official who heads the group.
"The tax also violates the Constitution as it is considered double taxation, given that property taxes are already imposed on people's homes."
According to a recent poll by Realmeter, 53.3 percent of respondents said they support changing the current comprehensive real estate tax. Mostly people in their 30s and over 60 showed support for the change, reflecting those age groups' particularly sensitive toward the government's real estate policies.
Politicians are also speaking out on the matter. The main opposition People Power Party's outspoken lawmaker Hong Joon-pyo ― a major contender in the party's presidential primaries ― argued that the tax was double taxation that violates the Constitution.
"A single item should be taxed once, but the government is imposing two different taxes homeowners ― 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
Responding to the criticism, the Ministry of Economy and Finance explained that the tax on real estate was not that high compared to other countries. According to a ministry press release distributed in April, Korea's real estate tax rate was 0.16 percent ― based on real estate holding taxes divided by property value. The comparable rate in the U.S. stands at 0.9 percent, followed by Canada at 0.87 percent, the 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 through justifiable and appropriate application," it said.
The ministry also defended itself against the double taxation accusation, saying the property tax and the comprehensive real estate tax were not double taxation, as repetitive items are exempted in determining them. The ministry also argued that the real estate tax contributes to lessening unequal regional development, as the money collected is redistributed to local governments.
However, experts 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 was inappropriate, as the data is from 2018 and does not reflect the sudden increases of both tax rates that took effect this year as well as the soaring housing prices in recent years.
"A simple comparison with other countries isn't enough. It is excessive for the amount of real estate tax to be tripled in just one 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 argue that the increased tax burden will trickle down to tenants, thus even renters will be affected by the tax.
