Self-cultivated farmland capital gains exemption added to in-depth tax review; extension, reduction or abolition on table before year-end sunset

File photo for illustration purposes only [Getty Images Bank]
File photo for illustration purposes only [Getty Images Bank]

The government is conducting a full review of the capital gains tax exemption for self-cultivated farmland, a benefit long criticized for fueling speculative demand in agricultural land. The move comes as President Lee Jae Myung has raised concerns about abnormally high prices for rural forest and farmland, with the government now examining both the farmland tax break and options to strengthen levies on non-business-use land.

According to related ministries Tuesday, the Ministry of Economy and Finance has included the self-cultivated farmland capital gains tax exemption in this year's in-depth review of tax incentive programs and is assessing whether to revise the regime. A comprehensive survey of farmland ownership and usage nationwide is also underway in parallel.

Under the current Restriction of Special Taxation Act, landowners who reside near their farmland and cultivate it directly for eight or more years are eligible for a 100 percent capital gains tax exemption — up to 100 million won (about $64,700) per year and 200 million won over five years.

When farmland is transferred to the Korea Rural Community Corporation or an agricultural corporation, the self-cultivation requirement drops from eight years to three. That provision is set to sunset at the end of this year, requiring the government to decide whether to extend it.

The self-cultivated farmland exemption was originally designed to support the financial stability of farmers, but it has consistently drawn criticism for encouraging land speculation and illegal subletting. Critics have pointed to cases in which landowners meet the self-cultivation requirement only on paper, or conceal rental arrangements to claim the tax benefit.

Both inside and outside the government, observers see President Lee's recent remarks as directly connected to the tax reform debate. At a press conference Monday, Lee cited the problem of rural forest land prices, saying, "Even forest land in rural areas with low practical value is priced so high that people who actually need it cannot use it," and adding that "there is a fundamental need to lower expected returns."

The government plans to use the in-depth review to comprehensively assess the policy effects and side effects of the farmland tax break before deciding whether to maintain, scale back or abolish it.

Stronger taxation on non-business-use land is also under consideration alongside the farmland review. In April, President Lee told the National Economic Advisory Council that the government should review corporate holdings of non-business-use real estate "in the direction of imposing a substantial ownership burden."

The Ministry of Agriculture, Food and Rural Affairs and local governments are conducting a nationwide census of farmland ownership. The government has previously conducted annual sample-based checks on farmland usage, but this marks the first time a full census covering all farmland across the country has been undertaken.

Based on the census results and the in-depth tax review, the government is expected to develop a clearer picture of how farmland is owned and used, and to draw up measures to curb speculation while reorienting the system around those who actually farm the land.


fact0514@heraldcorp.com