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New Taxes on Home Rental, Liquor, Tobacco Mulled

Posted July. 08, 2009 09:11,   


An owner of three homes or more must pay income tax on rent generated from leasing homes through "jeonse," or rental based on a lump sum key deposit, as early as next year.

The government is also considering "sin taxes" on alcohol and tobacco.

The Strategy and Finance Ministry yesterday said it is devising measures to tax home rent from jeonse just like tax on monthly rent to resolve a shortfall in tax revenue and reduce tax exemptions and cuts for high-income earners.

The Korea Institute of Public Finance, which was commissioned to conduct a study by the ministry, held a public hearing on reforming the tax system for home rental at the Korea Federation of Banks building in Seoul yesterday.

Announcing the interim results of its study, the think tank said, “We should impose a rental income tax on an owner of three jeonse homes or more, and exempt a home owner whose key deposit for jeonse is 300 million won (235,600 U.S. dollars) or less.”

It also suggested a plan to offer tax deductions to tenants who pay monthly and bimonthly rent to help ease rent costs for low-income workers.

Owners of two or more homes or expensive homes have had to pay tax on their rental income but owners of jeonse rental homes were exempt, leading to controversy over equity in taxation.

Joo Yeong-seop, head of the ministry’s tax policy bureau who served as a panelist at the hearing, said, “Since we are considering introducing the income tax on jeonse home rental for the first time, we believe it desirable to tax owners of three homes or more and on more than a certain amount of jeonse key deposits.”

If the government limits the payers of income tax on home rental to those with three or more homes, the number of such taxpayers is projected to reach 560,000. Chances are high that the taxes they will pay will reportedly be determined by multiplying 60 percent of a jeonse key deposit by a tax rate to come up with the amount of payable tax.

Since many oppose income tax on jeonse key deposits, however, the plan will likely face intense dispute before being introduced. Critics say landlords could pass the tax on tenants, which in turn will increase real estate costs.

The ministry is also considering a drastic hike in taxes on external non-economy items that are considered to have a negative effect on society, including tobacco and liquor.

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