K-Policy Platform "Lower Capital Gains Tax Rate and Progressive Taxation on Property Holding Tax"

Presentation of Directions for Real Estate Tax System Reform

[Sejong=Asia Economy Reporter Kim Hyunjung] The private think tank ‘K-Jeongchaek Platform,’ composed of former ministers, vice ministers, and high-ranking officials, has argued that the capital gains tax rate should be lowered from the current level and the property tax should be restructured into a progressive taxation system.

On the 13th, K-Jeongchaek Platform stated in its report on the ‘Direction of Real Estate Tax Reform’ that "the capital gains tax, which has become more burdensome and complicated due to several rounds of tax reforms by the government, should have its rates lowered considering the income formation period, proportionality with the personal comprehensive income tax rate, and incentives for multi-homeowners to supply housing."

Since June this year, the government has raised the additional tax rates for multi-homeowners in regulated areas, with the highest capital gains tax rates reaching 65% for two-homeowners and 75% for three-homeowners. For those holding houses or pre-sale rights for less than one year, the capital gains tax rate has been increased up to 70%. K-Jeongchaek Platform argued that it is necessary to adjust the additional tax rates for multi-homeowners in regulated areas to below previous levels to provide incentives for housing supply. Since property taxes have already been significantly increased, capital gains tax should be set at a level slightly above the income tax rate to encourage supply.

Regarding the capital gains tax rate for 1-2 year holdings, they proposed shifting from a flat 60% rate to either an additional tax rate on the basic rate or a lower flat rate structure. They also claimed that "there is no basis for the short-term holding tax rate for one-homeowners to be higher than that for two-homeowners." Instead, they suggested that the capital gains tax exemption benefit for single-homeowners should be converted into a first-home or a certain amount deduction. Granting repeated capital gains tax exemptions to single-homeowners causes equity issues with other types of income earners.

They proposed that the comprehensive real estate tax, which applies rates up to 6% depending on the number of houses owned, should be operated as a progressive tax based on the taxable standard. In particular, since the additional tax rate for regulated areas is already reflected in the taxable standard (price), there is no need to consider additional rates for regulated areas. Considering the wealth tax nature of this tax item itself, the actual taxation level and target should be reduced.

Regarding acquisition tax, they argued that the current progressive structure operating at 1-3% (for single-homeowners) should be eased to maintain transaction fluidity by applying a two-step differential tax rate or changing to an excess progressive tax rate structure that applies progressive rates to the amount exceeding the standard value. They also proposed raising the income deduction limit for long-term housing mortgage interest or principal and interest repayment on housing rental deposits to stabilize housing for the middle class.

K-Jeongchaek Platform was launched on February 23, led by former Minister of Science and Technology Lee Ju-ho (Chairman) and former Commissioner of Statistics Korea Park Hyung-soo (Director). Former Ministers of Strategy and Finance Yoon Jeung-hyun, Park Jae-wan, Yoo Il-ho, former Minister of Land, Transport and Maritime Affairs Kwon Do-yeop, former Minister of Construction and Transportation Choi Jong-chan, and former Chairman of the Financial Services Commission Jeon Kwang-woo serve as board members and advisory committee members.