The government is preparing a comprehensive redesign of the asset taxation system, focusing on real estate taxation ahead of next year's tax reform announcement. The core of this initiative is a shift from simple tax rate adjustments to a framework centered on 'primary residence and investment income taxation,' which is expected to have significant repercussions across the real estate and financial markets.
According to the Ministry of Finance and Economy, the government plans to unveil the tax reform proposal by the end of July.
At the heart of this reform is the real estate tax system. Following the expiration of the temporary exemption on capital gains tax for multiple homeowners on May 9, the government is seriously considering shifting the long-term holding special deduction from a holding period focus to a primary residence focus. This change aims to move away from a structure that previously rewarded mere ownership to one that adjusts tax burdens based on actual residency.
Additionally, the government is reviewing the reduction of tax benefits for rental business operators. The exemption from capital gains tax for rental business operators in designated adjustment areas has faced ongoing market distortion controversies, prompting the government to formalize its intention to reassess this policy. Strengthening residency requirements while reducing tax support for investment holdings could lead to market structural changes, including an increase in available properties.
Deputy Prime Minister and Minister of Finance and Economy Ku Yun-cheol stated during a press briefing on May 11, "Real estate should no longer be viewed as an asset for profit but approached with a focus on housing stability," clearly indicating a policy direction to redefine real estate as a 'housing asset' rather than an 'investment asset.'
The potential revision of property taxes is also a key variable. Within the government, there is a cautious sentiment regarding the immediate reinforcement of property taxes. Concerns have arisen that raising property taxes could exacerbate instability in the housing market, particularly as signs of price volatility emerge in the Gangnam area of Seoul. However, as the principle of residency-based taxation is strengthened, the need to adjust burdens for multiple homeowners and non-residential property holders is likely to remain a topic of discussion.
Consequently, rather than uniformly increasing property taxes, proposals to differentiate tax rates based on residency status and ownership purpose are gaining traction. The burden on primary homeowners would be maintained, while tax equity would be enhanced for high-value, non-residential, and investment properties. Observers suggest that if the revisions to the long-term holding special deduction and the reduction of rental business operator benefits are realized, the property tax system may also be readjusted in the same direction over the long term.
The introduction of a financial investment income tax is likely to be postponed for the time being. On May 12, Deputy Prime Minister Ku indicated during a cabinet meeting that it would be a matter to be considered once market conditions are sufficiently established, suggesting that the timing is not yet right.
However, this could raise issues of equity with regard to cryptocurrency taxation. The government is preparing to apply a 22% tax rate on capital gains from cryptocurrency transactions starting next year. If taxation on cryptocurrency is implemented before capital gains tax on stocks, it could lead to inevitable debates over tax equity among different asset classes.
In addition, a comprehensive review of tax expenditures is underway. The government plans to reassess the temporary relief measures expanded during the COVID-19 response and eliminate ineffective tax supports. However, in the National Assembly, bills demanding the extension of sunset provisions have been introduced, indicating a growing struggle over policy direction.
Adjustments to the taxable income standards for comprehensive income tax are also of interest. The current tax base system has been in effect since the 2023 tax year. To address the fixed structure of tax brackets amid rising prices, there are calls in the political arena for the introduction of an 'income tax inflation linkage system' that would automatically adjust thresholds based on inflation rates.
* This article has been translated by AI.
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