Twenty Percent Increase in Land Prices, 40 Percent Increase in Tax Payments

The declared average land price that is basis of the related taxes and the compensation for the sites has increased by almost 20 percent this year.

After July 1 when the declared land price is settled, the gift and succession tax will be raised to 40 percent. A registration and an acquisition tax will be increased by approximately 20 percent. Because of the application of progressive tax rates, a transfer income tax will increase to 300 percent according to the area.

In particular, the declared land prices of the proposed sites for the new administrative capital such as Chungchong province has increased by 82 percent. Experts analyzed that consequently more than three trillion won for a supplementary budget is necessary for the compensation of those sites.

The Ministry of Construction and Transportation (MOCT) reported on February 27 that the average declared land price on a national scale has increased by 19.56 percent since January 1 in 2004.

The increased rate of the land prices went up from 0.60 percent in 2001 and 1.28 percent in 2002 to 11.14 percent in 2003. The rate is even higher this year.

MOCT explained that the increased rate this year is the highest watermark level in 14 years since 1990 (20.58 percent) by estimates because the exact rate prior to 1996 are unknown due to a lack of data.

The increase rates by provinces are 27.63 percent in South Chungchong, 25.92 percent in Kyunggi, and 21.58 percent in Kangwon. The rates have also increased by over 20 percent in South Kyungsang Privince and the Incheon area. Seoul records a 15.52 percent increase, and the rates in Kwangju, Busan, and Daegu are all less than 10 percent.

The biggest reason for skyrocketing of the declared land price is that government has announced development projects one after another such as the construction of the new administrative capital and new cities and the release of limited development districts.

As the land price has increased, the related taxes will increase as well.

A licensed tax accountant said, “As a gift and succession tax is imposed progressively, the tax goes up from 10 million won to 14 million won when the declared land price increases from one billion won to 1.4 billion won.”

MOCT selects a certain extent of representative land to estimate every January 1. The estimation becomes the basis of the compensation for the land prices, provincial medical care insurance, and the related taxes such as a gift tax, a succession tax, a transfer income tax, a registration tax, and an acquisition tax. The land prices by provinces are settled by the average prices at the end of June and becomes effective from July 1.

Kwang-Hyun Kim Cheol-Yong Lee kkh@donga.com lcy@donga.com