More House Sale Will Be Taxed on Real Sale Price

It is reported that the government will expand the scope of the taxable objects for which the transfer tax is levied based on the exact sale price.

Ever since the government made such an announcement on October 11, according to which the scope of real-price taxation and luxury house will be expanded to regulate speculations in some areas, the supply has well exceeded the demand in Kangnam area (i.e. part of Seoul south of the Han River). In this area, the market for apartment units has lost its steam, making it possible to predict that the market will shrink at a fast pace.

On October 13, one official of Ministry of Economy and Finance confirmed, “In a meeting where government agencies discussed follow-up measures for the Oct. 11th announcement, National Tax Service proposed that it could levy tax on all house transactions based on their real prices. Thus, we will continuously expand the scope of the real-price taxation.”

He also explained, “The Tax Service will first secure a reliable database in order to prevent any problems arising out of corruption or lack of administrative ability. As part of that effort, the court will inform the service of the new land recordings every day.”

Prior to 1982, the transfer tax was imposed based on the real transaction price. But, due to the lack of administrative ability and some corrupt government workers, who officially recorded the price lower than the actual amount, the policy was discarded, and a new system was adopted and is still being enforced. Under the new system, which is named “Standardized Price Taxation,” the tax amount is computed according to the predetermined table of prices, unless the object of the transaction is a luxury house; the conveyance is made within one year of the purchase; or the conveyance is not registered or faked up.

Through the policies announced on Sep. 4th and Oct. 11th, new additions have been made to the tax code. For example, if a household retains more than 3 houses, a heavy tax is levied on the household. Moreover, taxation is to be made based on the amount for which a house is sold in some speculation-infested areas, and the definition of a luxury house is expanded to encompass other types of houses.

Usually the standardized price for apartments represents only 70-80% of the amount of the sale. Thus, if taxation is made off the sale price, the amount of the tax to be paid is sharply increased. In the meanwhile, the ministry reportedly plans in consultation with the service to implement several measures to enforce what is announced in its Oct. 11th policy. For instance, it would check out, with the purchasers, the real prices of the sales in speculation areas, and would announce the standardized prices twice a year. Currently, the ministry announces it only once a year.

Kwang-Am Cheon Jae-Seong Hwang iam@donga.com jsonhng@donga.com