Gov`t to Impose Capital Gains Taxes on Households Owning One Home

The government is set to discuss plans to impose a capital gains tax on households with more than one home this month before amending a law next year.

While actively pushing for a plan to lower corporate taxes, the government decided to broaden its application of earned-income tax to lessen workers` tax burdens by an annual 30,000-200,000 won for those with incomes less than 30 million won, starting from next year.

Deputy Prime Minister and Minister of Finance and Economy Kim Jin-pyo said: “We will discuss a plan to impose a capital gains tax on households owning one home within this month with the Tax System Development Committee, policy-makers, experts and the press,” in a press conference after economic-policy coordination meeting on June 4. “We will be able to amend related laws as early as next year.”

Although the government imposes capital gains tax on the households with only one home, the amount will be offset by deductions and exemptions when profit from the sale of houses does not exceed a certain amount.

Regarding this, the deputy prime minister added that in Japan, the limit is 30 million yen or 300 million won when people lived in the same place for over two years. “We need to set the limit higher than that.”

He also said that the current corporate tax system is problematic in that large conglomerates have more advantages than mid-sized companies. “We will consider lowering the rate of corporate taxes and discuss from many different perspectives.”

On the same day, the government decided to raise the rate of earned income credit deduction by 5% from next year for those who earned less than 30 million won a year.

For a family with four members, the tax relief is estimated to be 30,000 won for those with an annual income of 18 million won; 40,000 won for those with an annual income of 20 million won; 60,000 won for those with an annual income of 25 million won; and 200,000 won for those with an annual income of 30 million won. In addition, the government will lower tariff rates on basic raw materials in order to strengthen corporate competitiveness. Accordingly, from July, tariffs will not be imposed on 12 items including steel and naphtha while the tariff rate of crude oil will be lowered from the current 5% to 3%.

Along with this, the minimum corporate tax rates of mid-sized companies will be down to 10% from the current 12% next year.

Meanwhile, the government confirmed its plan on the supplementary budget of 4.18 trillion won at a state council meeting on the same day before it submits the plan to a special session of the National Assembly.

Regarding the supplementary budget, 1.54 trillion won will go to construction investment including social overhead capital (SOC), 658.5 billion won to the general populace and the middle class, 590.1 billion won to mid-sized export companies, 385.7 billion won to farms, 936.4 billion won to local communities, and 69.4 billion won to Iraq.

Kwang-Hyun Kim Kwang-Am Cheon kkh@donga.com iam@donga.com