[Exclusive] Hong Jun-pyo "If Suseongmot transfer is refused, comprehensive real estate tax applies"... Rural Development Corporation counters with 'Park Reservoir Tax Exemption'

Rural Development Corporation to Push for Local Tax Law Amendments... Appoints Kim & Chang
Key Point: Introduction of Separate Taxation Clause... Including Reservoirs
Aftermath of Suseongmot Ownership Dispute... "May Violate Constitution"

Suseong Lake located in Daegu.
Photo by Asia Economy DB

[Asia Economy Sejong=Reporter Lee Jun-hyung] Korea Rural Community Corporation (KRC) is understood to have started behind-the-scenes work with a major domestic law firm to amend the Enforcement Decree of the Local Tax Act. This is to include agricultural infrastructure sites that have lost their original function, such as Daegu Suseongmot, which was created as an agricultural reservoir, in the scope of separate taxation. Amid Daegu Mayor Hong Jun-pyo's claim for the free transfer of Suseongmot and his announcement of holding tax imposition, it is analyzed that KRC has taken a direct countermeasure.

According to a compilation of reports on the 6th, KRC plans to propose an amendment to the Enforcement Decree of the Local Tax Act to the Ministry of the Interior and Safety as early as next month, focusing on the establishment of separate taxation provisions. KRC also plans to undergo a feasibility evaluation of separate taxation by the Ministry of the Interior and Safety within the first half of this year and then receive deliberation from the Local Finance Burden Deliberation Committee. To this end, KRC recently appointed Kim & Chang Law Office as its legal representative and has begun related work such as preparing the amendment.

Establishment of Separate Taxation Provisions

KRC's goal is to establish separate taxation provisions for agricultural infrastructure sites. The current Enforcement Decree of the Local Tax Act does not provide grounds for separate taxation of agricultural infrastructure sites such as agricultural reservoirs. This means that agricultural infrastructure sites owned by KRC are classified as comprehensive aggregated taxation targets and are subject to property tax and comprehensive real estate tax. However, if agricultural infrastructure sites become subject to separate taxation, they will be excluded from the comprehensive real estate tax, significantly reducing the tax burden.

KRC is trying to expand the scope of separate taxation because the burden of comprehensive real estate tax is increasing. In fact, KRC's comprehensive real estate tax payment increased by about 6 billion KRW in one year, from 17 billion KRW in 2020 to 23 billion KRW in 2021. This is due to the rise in official land prices caused by land price increases and the increasing cases where local governments impose holding taxes on agricultural infrastructure sites. Accordingly, the holding tax related to agricultural infrastructure sites paid by KRC in 2021 (5.1 billion KRW) accounted for 13.8% of the total holding tax (36.9 billion KRW).

The Conflict over ‘Suseongmot’ as a Catalyst

The conflict over the ownership of Daegu Suseongmot has served as a catalyst. Suseongmot is an artificial reservoir created in 1927 to supply agricultural water. After taking office last year, Daegu Mayor Hong Jun-pyo argued that KRC should transfer ownership of Suseongmot to Daegu City free of charge. His reasoning is that due to urbanization, Suseongmot has lost its original function as an agricultural reservoir and is being used as a park, so Daegu City should manage it directly. Mayor Hong also announced that if KRC does not transfer ownership of Suseongmot, he would impose comprehensive real estate tax on Suseongmot, signaling the imposition of holding tax.

In response, KRC is also pursuing a plan to include park-use reservoirs such as Suseongmot in the non-taxable category. This is a plan to expand the non-taxable targets to include ‘reservoirs for park green spaces’ through the amendment of the Enforcement Decree of the Local Tax Act. Under current law, non-taxable reservoirs are limited to ‘agricultural and power generation reservoirs.’ KRC believes there is room to convert reservoirs that have been repurposed as parks into non-taxable targets, considering their public nature.

KRC has also drawn a line regarding the free transfer of Suseongmot. A KRC official explained, “We invest about 350 billion KRW annually to supply agricultural water free of charge nationwide,” adding, “If the revenue related to Suseongmot or the asset itself disappears, resources will decrease, inevitably lowering the quality of agricultural water services.” A related official from the Ministry of Agriculture, Food and Rural Affairs, the competent ministry, said, “(The free transfer of Suseongmot) is a practically difficult demand,” and “There is also a possibility that it violates the Constitution.”