Carbon Tax on City Gas and LPG

The South Korea government is considering a “carbon tax,” which will impose additional tax on petroleum products with high carbon emission, including city gas, liquefied petroleum gas (LPG), and heavy oil, starting from 2008.

Another new measure under consideration is to incorporate the real estate registration tax, currently a local tax, into a national one so that the National Tax Service can directly supervise the reported price of real estate trades.

According to the Ministry of Finance and Economy and the Special Committee for Taxation Innovation under the Presidential Committee on Government Innovation and Decentralization on August 15, the government plans to report the related study result on the medium- and long-term taxation reform to President Roh Moo-hyun and will finalize related measures through a public hearing in December.

Tax Burden Will Be Heavier for Individuals, but Lighter for Companies—

The main purpose of the taxation reform is to increase the individual’s consumption tax and to decrease corporation tax.

The government also plans to add a carbon tax to the extinguished oil tax after 2008, which already includes a transportation tax and a special excise tax.

The adoption of a carbon tax will heighten the city gas price by 2.9 percent and the heavy oil price by 3.7 percent, according to the Korea Energy Economies Institute.

The government plans to introduce the consolidated tax return system, under which a corporate tax is imposed on the total net profit of a holding company and its subsidiary companies. For instance, when a holding company has one billion won of net profit and its subsidiary company has 500 million won of net loss, its corporate tax will be imposed on the total net profit, 500 million won. This will naturally reduce the company’s burden.

New Measure Will Encourage Traders to Report the Actual Trade Price of Real Estate—

By letting the National Tax Service collectively supervise the real estate registration tax and the transfer income tax, the government also hopes the new measure will encourage traders to report the actual trade prices.

Presently, a transfer tax is a national tax, and the registration tax is a local one. Therefore, the National Tax Service only knows the trade price that sellers report and it is almost impossible to verify the actual price that buyers report.

“If the comparison of every price reported in a registration tax and a transfer tax is possible, there will be no more false reports by both the sellers and buyers,” said Roh Yeong-hun, a tax researcher.

As a registration tax is put into a national tax, local governments are expected to experience reduced tax revenues. Therefore, the government is additionally planning a local excise, which intends to turn a part of a value-added tax over to local governments.

legman@donga.com