20 % of Additional Tax Imposed on Unpaid Acquisition Tax is Unreasonable

The constitutional court unanimously ruled Thursday that the provision 1 in the article 125 of the law on taxes is not right. The provision stipulates that 20 percent of unpaid acquisition tax can be uniformly imposed in penalty to those who registered their acquisition tax after the deadline or who failed to pay the acquisition tax until deadline. The court ordered the suspension of the execution of the provision. As a result, local government cannot impose additional tax on unpaid acquisition tax and can not collect additional taxes it already imposed to unpaid acquisition taxes.

“ The amount of additional tax should be determined depending on the amount of unpaid tax and the duration during with tax is not paid. But the imposition of the uniform amount of penalty, which is 20% of unpaid acquisition tax, failed to take into account the duration factor. This is not reasonable, going against the principle of proportion.” said the court in its ruling.

The court also said that penalty for income tax accrues according to the number of days

during which income tax was not paid. But those who failed to pay acquisition tax have to pay 20 % of their unpaid tax in penalty regardless of the number of days during which they did not pay the tax. The court said that this practice goes against the principle of equal rights as there is no reason to discriminate against those failing to pay acquisition tax.

“If this provision is ruled unconstitutional, additional tax cannot be imposed on acquisition tax, which can trigger inequality between those who paid additional tax and those who did not. Therefore, the provision was not ruled unconstitutional, but was ordered that its execution should be suspended.” said the court.

The constitutional petition on the issue was filed by a person known as Choi last February. Choi, who acquired property in May 2002, was just one day late in paying his acquisition tax and was ordered to pat 800,000 won in additional tax.

Jin-Young Hwang buddy@donga.com