New Taxation Standard for Capital Levy and Comprehensive Real Estate Tax

The taxation standard will allow local government bodies the right to autonomously adjust the taxation standard according to their circumstances, under the condition of keeping the adjusted rate below the maximum limit of reduction. The estimated limit of reduction is expected to be 50 percent.

This measure was made to ease the possible tax burden that might be seriously heavier, since the announcement date of the official land price has changed staring this year so that the increased rate of land price for the past two years will be reflected at one time. The nationwide land price has increased by 37 percent on average.

Seven out of 16 Provincial Governments Prefer the Autonomous Adjustment—

From late June to mid July, the Ministry of Government Administration and Home Affairs had suggested three measures aiming to reduce the burden of the land tax and capital levy to 16 provincial governments nationwide, in order to know which measures are most preferred. The result indicates that seven provincial governments, including Busan, Daegu, and Ulsan, have selected the measure to let the provincial government autonomously adjust the taxation standard within the maximum limit of reduction of 50 percent.

Other four provincial governments, including Daejeon and Gyeonggi, have selected the measure to decrease the taxation standard nationwide by the same rate. Gwangju, South Jeolla Province, and North Chungcheong Province have chosen a measure to reduce the standard in proportion to the increase rate of land price. Seoul and Incheon have suggested an opinion that there is no need to reduce the taxation standard.

In the case of Seoul, 80 percent has objected to the reduction of the taxation standard, fearing a drop in the revenues. But, they added if the taxation standard reduction is inevitable, autonomous adjustment would be preferable.

“Considering that the land tax is local one, opinions from the local government bodies would be significantly dealt with,” according to Kang Min-gu, the manager of the local tax administration team from the Ministry of Government Administration and Home Affairs.

Early next year, the ministry will prepare the ordinance for the tax reduction, and send it to local governments. Then, the local governments will set up their version of adjustment plan based on the ministry’s ordinance.

The reduced taxation standard reflecting the ordinance will be used in calculating the land tax (due for September) and comprehensive real estate tax (due for December).

Large Regional Differences in Land Tax—

The land tax is expected to show a large difference according to different reduction scales by each local government.

For instance, the official land price for 7,900 square meters of the forest land located in Choi-dong in Hanam city, Gyeonggi Province rose from 175,000 won per square meter in 2004 to 259,000 won in 2005, recording a 48 percent increase.

If Hanam city refuses to accept the reduction ordinance and follows the current standard, the taxation standard for this land will be 1,023,050,000 won, and its land property tax will reach 2,892,200 won. However, if the official land price is reduced by 50 percent, its taxation standard will be 857,150,000 won, and its land property tax will be reduced to 2,371,450 won.

legman@donga.com