[Reporter’s Notebook] The Patchwork Comprehensive Real Estate Holding Tax, Time to Decide on Abolition

Trapped in the "Wealth Tax" Frame, Used Only for Policy Purposes
Taxation Depends on Perspectives on Tax and Freedom
Abolition Bill Calls for Serious Debate

[Asia Economy Reporter Hyunju Lee] There is unusually strong tax resistance against the 'Comprehensive Real Estate Holding Tax (종합부동산세, 종부세)'. Introduced for the first time during the Roh Moo-hyun administration, the 종부세 aims to stabilize real estate prices and achieve balanced regional fiscal development by strengthening the tax burden on high-value real estate holders, as stated in Article 1 of the 종부세 Act.

However, immediate policy effects did not materialize. In the first year of the 종부세 introduction in 2005, housing prices actually soared, and the same high-rise trend continued during the Moon Jae-in administration. This was because the real estate policy was used under the 'wealth tax' frame.

The bigger problem is that patchwork amendments were made due to policy shifts swinging between extremes with each administration. In the early period of the Moon Jae-in administration, the tax law was revised to strengthen 종부세 taxation, but in the latter period, it was eased by raising the 종부세 taxation threshold for single-home households from 900 million KRW to 1.1 billion KRW. Political circles interpreted this as the Democratic Party changing its policy stance considering the 20th presidential election held the following year after losing the April 7, 2021, by-elections.

There are also reports that the first 종부세 Act amendment under the Yoon Suk-yeol administration was mostly approved as originally proposed because the number of 종부세 targets significantly increased in the Democratic Party strongholds of Nowon, Dobong, and Gangbuk districts. Through last year's tax law amendment, the Ministry of Economy and Finance restored the heavy taxation rates on multi-homeowners revised during the Moon Jae-in administration without major disagreements with the Democratic Party and raised the official property price threshold for single-home households from 1.1 billion KRW to 1.2 billion KRW.

The highlight is the background behind the change in the 종부세 taxation threshold for single-home households. The threshold was first introduced during the Lee Myung-bak administration, and it is said that then-Minister of Strategy and Finance Kang Man-soo was shocked upon seeing his own 종부세 notice and called the responsible manager to revise the law.

Dominic Frisby, author of 'The History of Taxation,' argues that while taxes cannot be avoided, state intervention should be minimized. How much longer will the 종부세, which fails to curb housing prices and only provokes resistance, remain effective? In the National Assembly, a bill to abolish the 종부세 is being promoted. It is now time to have an in-depth discussion on whether to abolish the 종부세.