Tax reform's 5-year revenue effect four times larger than government estimate, think tank says

A real estate agency in Songpa-gu, Seoul, on Wednesday, as the government announced a tax reform plan raising the comprehensive real estate tax burden on ultra-expensive homes and non-resident single-home owners. Under the 2026 tax reform plan released Monday by the Ministry of Economy and Finance, the comprehensive real estate tax rate for homes with a tax base between 600 million won ($421,800) and 1.2 billion won will rise from the current 1.0 percent to 1.3 percent next year, based on single-home ownership. [Yonhap]

The government's 2026 tax reform plan is expected to reverse more than half of the large-scale tax cuts carried out under the Yoon Suk Yeol administration, an analysis found. Critics noted, however, that while the plan streamlines some tax expenditures, it simultaneously introduces a string of new tax breaks, leaving the tax system more complicated than before.

The Narasallim Research Institute released a report Thursday titled "2026 Tax Reform Plan: Limited Progress, a More Complex Tax System," describing the overhaul as "meaningful in terms of improving fiscal conditions, but lacking consistent tax principles — making the tax system more complex and crude."

The institute said the government's stated five-year revenue effect of 3.4 trillion won was calculated using a "net method" that compares figures against the previous year. Recalculated on a base-year cumulative basis, the actual revenue increase would reach approximately 13.3 trillion won — about four times the official estimate, the institute said. Of that total, the increase in the comprehensive real estate tax alone accounts for 9.3 trillion won, or roughly 70 percent of the overall tax increase. By contrast, income tax revenue is projected to fall by 4.1 trillion won, largely due to an expansion of the Earned Income Tax Credit.

[Provided by Narasallim Research Institute]

The institute noted that the Yoon administration's tax cuts were projected to reduce revenues by about 80 trillion won between 2026 and 2030. Combined with last year's and this year's reform packages, roughly 45 trillion won in revenue would be recovered by 2030, reversing more than half of those cuts. Given fiscal stability concerns and future spending needs, the institute said the overall direction toward higher taxes is appropriate.

On the positive side, the institute welcomed the streamlining of tax expenditures. It praised the decision to abolish tax credits for childbirth, adoption and marriage and replace them with direct fiscal support, the elimination of inefficient exemption schemes, and the expansion of the Earned Income Tax Credit for low-income households. The institute also said consolidating the comprehensive real estate tax assessment standard from the number of homes owned to the value of the homes aligns with the tax principle that "equal value should bear equal tax."

The institute's sharpest criticism was directed at the lack of consistency in tax principles. While the government pledged to rein in tax expenditures, it simultaneously introduced a new 10-year domestic production tax credit whose policy effectiveness has not been verified, expanded full tax exemptions on interest and dividend income from individual savings accounts, and broadened youth-targeted tax support — moves the institute said add new layers of complexity to an already intricate system.

A property listing board at a real estate agency in Gangnam-gu, Seoul [Yonhap]

The institute also criticized the real estate tax provisions. Raising the basic deduction for the comprehensive real estate tax from 1.2 billion won to 1.4 billion won, and applying differentiated rates based on whether a single-home owner actually resides in the property and on the fair market value ratio, reinforces a structure in which homes of identical value are taxed differently. The institute said this undermines the principle of horizontal equity — that equal value should bear equal tax — and reflects political calculations around real estate policy taking precedence over sound tax principles.

"This reform achieved results in improving fiscal conditions and streamlining tax expenditures, but it made the tax system more complex by multiplying new exemptions and special provisions," the institute said, recommending that the government build a simpler real estate tax regime grounded in the consistent principle of raising holding taxes while lowering transaction taxes.

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