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Collapse of tax collection principles

Posted July. 22, 2020 07:47,   

Updated July. 22, 2020 07:47


One out of six homes in Seoul is dumbfounded at a property tax bill that is 30 percent higher than last year. Neither has a law changed to increase tax rates nor have they sold their homes to make profits, 580,000 households will have to pay millions won of property tax that has increased to the maximum level just because their homes’ declared value is over 900 million won. Some retirees who have not much income other than the ownership of a house say that they will have to find a part-time job to pay real estate tax.

The reason behind much larger real estate tax, such as property tax, is the faster and larger increase of declared values than the actual increase of housing prices. In order to control housing prices by increasing real estate tax, the South Korean government has increased the declared values of apartment houses – the criteria to calculate property tax, gross real estate tax, and national health insurance premium – in Seoul by over 10 percent for three consecutive years, driving up declared values to 75 to 80 percent of market prices. Some apartment houses in Gangnam have declared values of 90 percent of their market prices.

Following the payment of the remaining half of the property tax in September and receiving a bill for gross real estate tax to be paid in December, people’s complaints of excessive tax will grow. A legislative bill that is scheduled to be passed by the National Assembly this month to increase gross real estate tax 0.1 to 0.3 percentage points for single homeowners will be applied from next year. However, as the declared values of apartment houses in Seoul increased 14.7 percent this year and the fair market value ratio rose 5 percentage points from last year with a goal to reach 100 percent by 2022, the rapid increase of holding tax cannot be avoided. This is why South Koreans’ complaint of the current tax system is growing as they carry out online campaigns for days to make a phrase opposing the punitive real estate taxation a real-time trending search word and offline protests in Seoul.

Some experts argue that the Moon Jae-in administration’s expedient increase of tax by driving up declared values and the fair market value ratio without legislation by the National Assembly is in violation of the constitutional principle of no taxation without law. Others claim that it violates the principle of no excessive taxation by imposing heavy real estate tax to single homeowners as if to tell them to sell their house if tax is too high for them. While the basic principles of taxation are collapsing, the government and the ruling party are only focused on passing the bills that will make real estate tax burden soar until the end of this month.