The government has begun discussions to revise parts of its real estate tax plan just three weeks after its announcement. Concerns have been raised that the tax burden on non-resident homeowners could increase excessively, prompting the possibility of policy adjustments. While the intention is to alleviate unreasonable burdens on actual residents, there are warnings that frequent changes to the real estate tax system could undermine its predictability.
According to sources from relevant ministries and political circles on August 24, the government plans to maintain the overall framework of strengthening taxes on high-value properties while easing the simultaneous increase in the comprehensive real estate tax and capital gains tax for non-resident homeowners.
This issue was a key agenda item at the 10th high-level government-party meeting held the previous day. Kim Min-seok, the leader of the Democratic Party, expressed general agreement with the government's direction on expanding real estate supply and tax reform but emphasized the need for further review regarding the tax burden on non-resident homeowners.
Under the initial government proposal, non-resident homeowners would see simultaneous reductions in tax benefits for both the comprehensive real estate tax and capital gains tax. The basic deduction for the comprehensive real estate tax applicable to one-household, one-homeowners would be lowered from 1.2 billion won to 900 million won, while the capital gains tax would be restructured to gradually eliminate deductions based on the holding period, focusing benefits on actual residency.
As a result, concerns have been raised that homeowners who cannot reside in their properties due to work, children's education, or family care may face a sharp increase in their tax burden. Kim also noted that even if the current system is maintained, the tax burden on non-residents could naturally increase due to rising publicly assessed property values.
Kim Jeong-sik, an emeritus professor of economics at Yonsei University, stated, "Even if someone is classified as a non-resident, there are unavoidable circumstances, such as work or family issues, that prevent them from residing in their homes. It is not easy to determine which cases should be classified as non-resident and penalized. If the tax burden on non-resident homeowners increases, it could lead to a reduction in rental housing supply, driving up rental prices."
Some are concerned that the government's decision to enter into revision discussions just three weeks after announcing the tax reform plan could diminish the predictability of its policies. The real estate tax system directly impacts household asset management decisions, including when to buy or sell homes, as well as the duration of ownership and rental status. Frequent changes could distort the decision-making of market participants.
In particular, homeowners may delay selling their properties, leading to a slowdown in the market. If the perception solidifies that the government repeatedly postpones or modifies tax policies based on market conditions or public opinion, even if future tax measures are strengthened, the market may not accept them as a consistent policy, weakening the signal of the policy.
This presents a dilemma for the government. While it is necessary to address unexpected excessive tax burdens during the legislative process, retreating from the overall framework of the policy immediately after its announcement could undermine the credibility of the tax policy. Ultimately, the challenge will be to reduce unreasonable burdens on taxpayers while maintaining the originally proposed long-term tax principles to a certain extent.
Professor Kim added, "Even if the basic deduction for non-residents is lowered, if existing tax credits for long-term holders and seniors are maintained, the actual increase in tax burden may be limited. We need to consider whether it is necessary to impose disadvantages on non-residents if the administrative costs and market backlash outweigh the policy effects."
* This article has been translated by AI.
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