[2020 National Audit] Kim Du-kwan "Tax Reduction Benefits for Registered Rental Business Operators Seriously Undermine Tax Equity"

[Asia Economy Reporter Kwangho Lee] On the 22nd, Kim Doo-kwan, a member of the National Assembly's Planning and Finance Committee from the Democratic Party of Korea, pointed out that the massive tax reduction benefits applied to rental business operators are seriously undermining tax equity.

According to data provided to Kim by the Song Ki-gyun Economic Research Institute, a person owning three houses is required to pay a total tax of 329.52 million KRW, but registered rental business operators are only charged about 1.7 million KRW in total due to benefits such as capital gains tax exemption and comprehensive real estate tax exemption.

As another example of the deterioration of tax equity, Kim compared the taxes imposed on rental business operators and wage workers with the same estimated annual income. While a wage worker earning 90 million KRW annually pays an average of 12.44 million KRW in income tax, a registered rental business operator earning 90 million KRW annually from one property rented at 1.5 million KRW per month pays only 3.25 million KRW in taxes due to long-term rental tax reductions.

Kim also compared the taxes imposed when conducting a housing rental business and a general manufacturing business with the same 1 billion KRW loan. When comparing the total taxes over 10 years of business operation and until the property is sold, the housing rental business operator is exempt from property tax and comprehensive real estate tax due to combined exemption, and most of the capital gains tax and income tax are also reduced.

While rental business operators pay about 66.9 million KRW in taxes over 10 years enjoying various tax reduction benefits, manufacturing business operators have to pay taxes exceeding 2.3 billion KRW.

Kim said, "Fair taxation is a very important principle in realizing tax justice," and added, "The various tax reduction systems currently benefiting rental business operators are causing unfair and inequitable taxation, provoking public anger," calling for system improvements.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, acknowledged the side effects of the tax reduction system during the National Assembly audit held on the 8th, stating, "Currently, there is excessive disparity in taxation and abuse cases such as holding excessive rental housing to enjoy benefits are emerging."

He continued, "Fair taxation is the most important value for tax authorities, so efforts should be made to adjust the excessive parts pointed out," expressing his intention to improve the system.

Kim emphasized, "Although the policy was somewhat supplemented in the August 4 real estate measures, there are still many shortcomings," and added, "The Ministry of Economy and Finance needs to examine more closely to realize tax justice through fair taxation."