Sung Tae-yoon, Director of Policy Office, Reveals Tax Reform Direction
Comprehensive Real Estate Tax Applies Only to 'Ultra-High-End' Single and Multiple Homes
Inheritance Tax Rate Lowered to OECD Average Level
Future Shift to Estate Acquisition Tax and Capital Gains Tax
Presidential Office: "One of Several Alternatives Under Review"
Seong Tae-yoon, the Policy Chief of the Presidential Office, stated on the 16th that the comprehensive real estate holding tax (종합부동산세, Jongbuse) should be drastically eased to a level that is practically abolished, and the inheritance tax rate should be significantly lowered to 30%, which is the level of the Organisation for Economic Co-operation and Development (OECD), as part of a tax reform plan.
Seong Tae-yoon appeared on KBS's 'Sunday Diagnosis' on the same day and explained, "Tax-related reform work is absolutely necessary."
Abolishing Jongbuse is Desirable... Absorbed into Some Property Taxes
Regarding the Jongbuse reform, Seong said, "The effect on stabilizing housing prices is minimal, and there is a considerable possibility that the tax burden will be passed on to tenants," adding, "Because of these reasons, I think abolition or a complete overhaul is necessary."
He continued, "There is a tendency to be hostile toward multi-homeowners, but they are supplying jeonse and monthly rental housing," and said, "If the tax burden on low-priced multi-homeowners becomes excessively high, it could shrink the supply of jeonse and monthly rental housing."
He also said, "Jongbuse is used as a source of revenue for local governments, but property tax serves that function, so managing it integrally under property tax is a way to solve the problem of double taxation," and added, "I think it is desirable to abolish Jongbuse and absorb some parts into property tax if necessary."
However, Seong focused first on easing the tax, citing concerns about the deterioration of local finances if Jongbuse is completely abolished.
Seong emphasized, "It is desirable to have ultra-high-priced single homeowners and those whose total value of owned houses is very high pay taxes, while abolishing Jongbuse for those with ordinary houses and multi-homeowners whose total value of owned houses is not very high."
Lowering Inheritance Tax Rates... Transitioning to Estate Acquisition Tax Later
Seong also explained that "it is time to reform" the inheritance tax.
He said, "In the past, because income tax and various other taxes were not collected smoothly, taxes were collected at the time of death," and pointed out, "Now, people pay a lot of taxes, so imposing additional (inheritance) taxes on the accumulated wealth is a problem of double taxation."
Currently, South Korea’s highest inheritance tax rate is 50%, and with the major shareholder surcharge system applied, it reaches 60%, which is very high globally. Seong explained that it should be lowered to the OECD average level. He said, "It is necessary to first reduce it to around a maximum of 30%."
Seong emphasized that after lowering the inheritance tax rate to the OECD average level, it should be gradually converted to an estate acquisition tax and capital gains tax system.
The estate acquisition tax considers each heir’s inherited property as an individual taxable unit, so the tax burden is lower compared to inheritance tax, which applies a progressive tax rate on the entire estate.
Seong said, "Currently, inheritance tax penalizes families with multiple children," and added, "It is necessary to change this form and transition to an estate acquisition tax system."
Capital gains tax is a system that defers taxes if children inheriting a business continue to manage it without selling. Seong explained, "If taxes are imposed when passing a business to children, the management rights become uncertain," and said, "Many countries are transitioning to a capital gains tax system."
In particular, Seong said the current inheritance tax exemption of 500 million KRW is too low and should be increased.
He said, "The exemption standard was set too long ago," and added, "It should be structured so that inheriting an apartment in Seoul does not impose an excessive inheritance tax burden." Along with this, Seong also plans to raise the exemption limit for spouses.
Seong emphasized, "Focusing on Jongbuse and inheritance tax is because these taxes typically have a large distortion effect on economic activities but do not generate significant tax revenue," and said, "Without reforming these parts, it is difficult to have overall economic vitality."
Presidential Office: 'One of Several Options Under Review'
However, the Presidential Office moderated the pace, saying that Seong’s explanation is "one of several options under review."
In a press release in the afternoon, the Presidential Office said, "We are currently reviewing various directions regarding the reform of the Jongbuse and inheritance tax systems," and explained, "Specific reform plans will be decided after July, considering tax revenue effects, appropriate tax burden levels, impacts on local finances, and through expert consultations."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
