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[Editorial] Comprehensive Real Estate Tax

Posted September. 24, 2008 08:59,   


The government announced yesterday that it will reduce the benchmark amount for the comprehensive real estate tax from 600 million won to 900 million won from next year and give tax discounts to senior citizens. The revision was based on the belief that excessive taxes are unsustainable and will revamp the previous Roh Moo-hyun administration’s tax bomb that mainly targeted the upper two percent of income earners. As Strategy and Finance Minister Kang Man-soo told the National Assembly yesterday, the comprehensive real estate tax should be merged with the property tax.

Though the revision of the comprehensive real estate tax was an election pledge of President Lee Myung-bak, certain members of the ruling Grand National Party are dragging their feet for fear of criticism that their party exists for the rich. The main opposition Democratic Party says the new tax cut plan only benefits the wealthiest one percent of the population. The claim, however, is nothing more than the opposition party’s admission that its now-defunct predecessor Uri Party introduced the comprehensive real estate tax as a punitive measure against the rich.

According to government statistics, 35 percent of those who paid the comprehensive real estate tax last year earned less than 40 million won that year. The tax bomb, which is supposed to put a dent in the rich, instead hurt low-income earners. Chung Dong-young, who ran for president last year for the now-defunct United New Democratic Party, announced his intention to cut taxes in his election campaign. “The purpose and principle of the comprehensive real estate tax is right, but tax rates have rapidly risen over the past three years,” he said. A party that serves the people should not change its position after the election.

The problem is that the comprehensive real estate tax cut will reduce subsidies for provincial governments. To prevent the tax system from being scrapped, the previous government had tax revenue reserved for provincial governments. To make up for the loss, raising property tax rates is being considered, but this will burden the people. A better solution is to overhaul the subsidy system established to promote “balanced regional development.” A close audit will plug the leak of these funds and have them used more effectively.

The National Tax Service will send out comprehensive real estate tax bills by Nov. 25. To prevent tax confusion, the Constitutional Court should rule on the legality of the comprehensive real estate tax as soon as possible. If imposing the tax on the combined sum of properties held by one household is found unconstitutional during the tax payment period, those who have paid the tax will be at a disadvantage.