[Tax Story] Let's Completely Eliminate the Tax Burden on Single-Home Households

Professor Ahn Chang-nam, Department of Taxation, Gangnam University

The Democratic Party's Real Estate Special Committee is preparing a tax reform plan for housing. This aims to improve the anti-market behavior of suppressing demand through taxation rather than expanding supply, and forcibly making existing owners put their houses on the market through punitive taxation.

The core of the real estate tax reform plan under discussion by the ruling party's special committee is to raise the non-taxable threshold for one household one house (high-priced housing) from the current 900 million KRW to 1.2 billion KRW, and to impose comprehensive real estate tax only on the top 2% of properties by official assessed value. The government, unlike the special committee's plan, proposed maintaining the current tax framework but introducing payment deferral systems or limiting the fair value ratio to 90%, among other measures.

This feels like an unfair, outdated, and theoretical approach detached from the essence of taxation and public sentiment. Attempts to achieve purposes other than tax collection through taxation still persist. Taxes should simply exist as taxes.

Specifically, transaction taxes and holding taxes on one household one house should be abolished (however, acquisition tax and property tax should remain, as residing in the area provides benefits such as access to libraries and other amenities, aligning with the benefit principle of taxation).

Under the current capital gains tax system, one cannot move from Seocho-dong to Banpo-dong within Seocho-gu, Seoul, with the same floor area. This is because capital gains tax must be paid on the portion exceeding the non-taxable threshold (currently 900 million KRW).

Capital gains tax should not have the authority to discourage moves by one household one house owners. Citizens comply with tax laws because they agree to fund the costs necessary for running the state, not because they consent to being hindered from moving.

The comprehensive real estate tax is the same. The Comprehensive Real Estate Tax Act was enacted to prevent real estate speculation. However, one household one house has nothing to do with speculation. Yet, requiring owners of houses with an official assessed value of 900 million KRW or more to pay this tax is nothing more than a punitive regulation against homeowners (however, for households with two or more houses, since there is a speculative purpose, I agree with maintaining the current tax system).

Of course, I understand the tax authorities’ concerns. Eliminating taxes on one household one house may reduce tax revenue, and preventing speculation is not as easy as it sounds. But just as Alexander cut the Gordian knot tied around his waist with a single stroke, the justification of ‘tax internationalization’ can be invoked.

Advanced countries do not impose capital gains tax on one household one house, so we should follow suit, and the comprehensive real estate tax on one household one house, which is not for speculative purposes, should be restored to its original position.

What about the shortfall in tax revenue? Since its introduction in 1977, Korea’s value-added tax (VAT) exemption scope has been continuously criticized by the OECD and others. Revising it to be similar to the European Union (EU) would be appropriate. Looking at the EU VAT system, which is the model for Korea’s VAT, exemptions are almost nonexistent.

Therefore, in line with the rationale of tax internationalization, the VAT exemption scope should be drastically reduced. The tax revenue gained from this can sufficiently cover the tax cuts on capital gains tax and comprehensive real estate tax for one household one house.

Voters are watching whether the actions of the tax legislators (the ruling party) are ‘fair’ or merely under the illusion of fairness when viewed against international standards. The results will be revealed in next year’s presidential election. There are quite a few people on this land who reluctantly supported the current ruling party because they dislike the far right or far left. To not disappoint them is to ensure that the current ruling party will have a spring next year.

Changnam Ahn, Professor of Taxation, Gangnam University