Controversy over the New Progressive Property Tax

From next year, property taxes on apartments will be increased 60 to 70 percent in the Gangnam area, southern Seoul, and 20 to 30 percent in the rest of Seoul, other metropolitan cities and local provinces.

The government also plans to introduce what it is tentatively calling a Comprehensive Property Tax. Under the proposed law, large-property owners would have to pay a progressive national tax calculated in accordance with the total amount of their property, and separate from existing local taxes, the Comprehensive Land Tax paid to the city, district or provincial governments.

The new tax is expected to face stiff opposition from wealthy taxpayers and stir controversy over its fairness. Also questioned is whether it can curb property speculation. For its part, the government could be criticized for resorting too much on taxes in addressing problems.

The revised tax regime was announced by Kim Doo-gwan, minister of Government Administration and Home Affairs. He said, "The government decided to reform the property tax system to eliminate property speculation and fairly impose taxes on people`s assets."

Kim Dae-young, the ministry official in charge of local taxes, noted, "Who would be subjected to the Comprehensive Property Tax and how much they should pay have yet to be determined exactly. But the new measure could affect over 100,000 people." Last year 249,000 individuals paid 500,000 won or more in Comprehensive Land Taxes. The government plans to transfer tax revenue collected from the Comprehensive Property Tax to local governments in an effort to help them with their finances.

The standard of how to impose the new tax would be determined by market prices of property, not the size or date of construction. As a result, the more expensive property is, the more its owner would have to pay in tax, and so land owners in the Gangnam area would have to pay 60 to 70 percent more in property taxes.

Also, property taxation standards will increase 3 percent annually to ultimately reflect 50 percent government-set standard land prices from 2006. The measure is designed to make the taxation standards more realistic.

According to the Ministry of Government Administration and Home Affairs, property taxes will be imposed in line with the National Tax Service`s standard land prices from next year. Thus, the current land tax of 170,000 won imposed for every square meter of a building will be hiked up to 460,000 won in accordance with the property taxation stands set by the tax authority.

The ministry also decided to reform existing tax rates to impose the proper amount of taxes on luxury home owners while not increasing the tax burden on average citizens, specifically those families owning just one home.

Jong-Hoon Lee taylor55@donga.com