Heavy Taxation Due to Be Imposed on Trading in Realty within Two Years` Ownership

Selling real estate, such as houses and land, within two years of purchase will be subject to heavy transfer income taxation of 40 to 50 percent beginning next year.

The so called “Overall comprehensive taxation system” is also to be implemented to impose tax on capital gains in any forms, although the transaction is not specified as a subject for tax in laws.

The Ministry of Finance and Economy (MOFE) held a deliberation council on improving taxation yesterday, in which participants reviewed a tax reform bill for 2003 and decided to present eight reform bills on relevant laws including the income tax law at the National Assembly during this fall session. The issues will be discussed during a cabinet meeting next month.

The bill includes that starting January 1, 2004, a transfer income tax rate on trading realty less than a year after purchase will be 50%, a dramatic increase from the current rate of 36%. When realty is sold between one and two years of purchase, a flat 40% tax rate will be applied instead of the current rates which range from 9 to 36%.

At the same time, from next year, a cash purchase, when a receipt is kept, can be eligible for partial tax credits.

50 out of 79 categories for corporate tax cuts including the tax cut on investment on facilities, originally scheduled to expire by the year’s end, will remain in place next year, which is designed to relieve the recent economic recession.

Limits on tax deductions and exemptions on medical expenses for the taxpayer will be lifted. It has been considered that tax deductions be applicable only when annual medical expenses exceed 5% of the total salary.

Currently, tax deductions are allowed only when the medical expenses surpass 3% of total salary and the benefit is expected on no more than 5 million won.

The MOFE explained, “The reform measures are designed to offer more generous tax deductions on treatments of serious illnesses, which have a heavy burden on the patient, while increasing an individual‘s financial burden for minor ailments.”

According to the reform measures, exemption of transfer tax on paintings and calligraphic works as well as antique objects will be eliminated from next year. The plan has been put off since 1990 in an effort to support the art industry in the nation. As a result, 1 to 3% of the sales price will be paid in tax, or, the gains from the transfer will be included in other incomes.

Controversies are expected to rise over the introduction of the overall comprehensive taxation system and the elimination of transfer income exemption on art works.

“It is outstanding that the reform bills mainly focus on improving the business environment of the nation”, said Lim Ju-young, Professor at the graduate school of taxation at the University of Seoul, and added, “but considering that there are too many extensions of tax relief and tax exemption, I wonder if the reform bills still hold to the principle of wider sources of taxation and a lower rate of tax.”