Tax burden to stay flat for non-residents while owner-occupiers get bigger break

Ruling party pushes to keep tax cap at 150% rather than raising it to 200%

A real estate agency in Gangnam-gu, Seoul, displays a listing of current market prices. [Yonhap]
A real estate agency in Gangnam-gu, Seoul, displays a listing of current market prices. [Yonhap]

The government is seriously considering keeping the basic deduction threshold for the comprehensive real estate tax on non-resident single-home owners at the current level of 1.2 billion won ($868,000) in assessed value, sources said.

The government had proposed lowering the threshold to 900 million won in a tax reform package announced earlier, but is now leaning toward reversing that cut following public feedback and high-level ruling party consultations, according to political sources Wednesday.

That would be 300 million won higher than the 900 million won figure in the government plan announced Aug. 3 — effectively restoring the deduction to its pre-reform level.

For owner-occupiers with a single home, the basic deduction would rise from the current 1.2 billion won to 1.4 billion won under the reform package.

The revised approach would spare non-resident single-home owners from a heavier tax burden while giving owner-occupiers a larger benefit.

Within the ruling party, there had been strong calls to narrow the tax gap between residents and non-residents, with some members arguing the two groups should not be treated differently at all.

Democratic Party of Korea leader Kim Min-seok, in his opening remarks at a high-level party-government consultative meeting Sunday, said the proposed changes — reducing the non-resident single-home deduction from 1.2 billion won to 900 million won and raising the tax burden cap to 200 percent — warranted "deep deliberation."

The government's apparent decision to settle on 1.2 billion won at the last minute signals that it intends to maintain the principle of favoring owner-occupiers in the tax code while applying differentiated rates to non-resident properties.

In its reform package, the government said it would "normalize the comprehensive real estate tax and capital gains tax burden on non-residential properties and properties above a certain value as part of rationalizing real estate taxation, while continuing to protect owner-occupied single homes."

There are also arguments that South Korea's housing reality — frequent relocations and the widespread use of the jeonse rental system — means non-residency due to unavoidable circumstances should be recognized broadly.

When the government unveiled its tax bill revision, it said periods of non-residency due to unavoidable reasons would be counted as residency periods. Qualifying circumstances listed at the time included schooling, job changes or transfers, illness, school transfers, overseas stays and caring for elderly parents.

Caring for grandchildren in another region is also being considered as an additional qualifying circumstance. However, that change would require only a revision to enforcement ordinances, not a National Assembly vote.

The government is weighing two options: submitting a partially revised version of the original reform package to the National Assembly after cabinet review early next month, or submitting the original plan largely unchanged and refining it during the legislative review process.

Whether to ease the tax burden cap is also a key point of debate. The government's plan calls for raising the cap from the current 150 percent to 200 percent, but voices within the ruling party are pushing to keep it at 150 percent to cushion the impact of any increase in the comprehensive real estate tax.

Keeping the cap at 150 percent would slow the pace at which any tax hike takes effect compared with raising it to 200 percent. If home prices and other valuations do not change sharply, the practical difference between the two settings is expected to be minimal after a few years.


oskymoon@heraldcorp.com