[News Terms] The Key Criterion for Levying Property Tax: 'Gongjeong Sijang Gaeg Biyul' (Fair Market Value Ratio)

The government has decided to extend the temporarily reduced property tax fair market value ratio, which was lowered last year to ease the tax burden on single-homeowners, for this year as well.

[Image source=Yonhap News]

The fair market value ratio refers to the percentage of the publicly announced price used as the tax base when determining the taxable standard for levying taxes. Simply put, it is the benchmark that decides what percentage of the publicly announced price will be used as the tax base. Different rates are applied for property tax, comprehensive real estate holding tax, and others.

The fair market value ratio was introduced in 2009 as a kind of discount measure to reduce the burden of the comprehensive real estate holding tax. Holding taxes such as property tax or comprehensive real estate holding tax are ultimately determined by multiplying the tax rate for each bracket by the taxable standard, which is calculated by subtracting the basic deduction from the publicly announced price and then multiplying by the fair market value ratio. If the fair market value ratio, which is the taxable standard, is low, the tax amount decreases accordingly.

However, during the Moon Jae-in administration, the comprehensive real estate holding tax fair market value ratio was raised to 95%, contrary to its original purpose, thereby increasing the holding tax burden. This ratio has since been lowered to the legal minimum of 60% shortly after the Yoon Suk-yeol administration took office.

The property tax fair market value ratio was maintained at 60% from its introduction in 2009 until 2021, but was lowered to 45% in 2022 to ease the tax burden following a sharp rise in publicly announced prices. Last year, the rates were set according to the housing value: 43% for up to 300 million KRW, 44% for up to 600 million KRW, and 45% for over 600 million KRW.

This year, the same property tax fair market value ratio will be extended. According to the amendment to the Local Tax Act Enforcement Decree approved at the Cabinet meeting on the 21st, the property tax fair market value ratio for single-homeowners will be maintained at 43-45% as it was last year. The amended law will be promulgated within this month and take effect immediately.