Government Considering an Additional Increase on Property Tax

The property tax on real estate holdings is expected to show a bigger increase than the government originally planned.

On October 23, an official from the Ministry of Government Administration and Home Affairs said that “the Ministry of Finance and Economy has recently asked for a strengthening of the property tax, for the stabilization of real estate prices. Therefore, we are reviewing the plan to raise the tax standard for the Aggregate Land Tax higher than the originally planned 3 percent next year.” If the tax standard for the Aggregate Land Tax, which is the official land price divided by the tax rate, is raised by three percent, taxation will increase 14 percent.

On the September 1 in the “Excessive Holding Taxation Plan,” the Ministry of Government Administration and Home Affairs announced its plan to increase the tax standard for the Aggregate Land Tax by three percent every year starting from this year to 2005.

The present taxation standard for the Aggregate Land Tax is approximately 36 percent of the official land price. However, at a time when the Comprehensive Real Estate Measures is scheduled to be announced at the end of this month, upon receiving criticism that the property rate was too low when taking the current reality into account, the ministry is now considering adding one to two percent to the original three percent.

“It has not yet been decided if we will impose these additional taxes nationwide, or on the metropolitan area only. In the case of the Gangnam district in Seoul, the official land price posted by the government has already increased more than 30 percent, so if the taxation rate is raised, property tax will increase drastically,” explained this official.

Furthermore, the ministry is considering strengthening the price of newly constructed buildings from 170,000 won per square meter to 460,000 won per square meter from 2005.

The price of new buildings is used when calculating the property tax. Therefore if this price is raised, taxation is also bound to increase.

The ministry is also discussing the possibility of applying the Aggregate Real Estate Tax (tentative name) that was to be introduced in 2006, one year earlier.

“As the Comprehensive Real Estate Measure is being co-drawn by many government departments, the Ministry of Government Administration and Home Affairs is considering all possible options. However, since there is concerns regarding the resistance from local governments that actually collect the tax, we are assuming an extremely careful attitude,” said the ministry official.

Ki-Jeong Ko koh@donga.com