Gov't, lawmakers agree to cut real estate holding tax to bolster economy

SEOUL, Sept. 22 (Yonhap) -- The government and ruling Grand National Party (GNP) agreed Monday to readjust the country's comprehensive real estate holding tax in a bid to bolster the sluggish economy.

The plan that will be formally announced on Tuesday calls for tax benefits for
roughly 380,000 households nationwide, with 223,000 to be exempt altogether from
paying the property ownership surtax.
The widely expected move reflects the incumbent Lee Myung-bak administration's
economic policy goal of trying revive consumer spending by increasing disposable
income, while at the same time breathing new life into the housing and
construction market. The construction sector accounts for about 18 percent of the
country's gross domestic product.
South Korea's economy, the 13th-largest in the world, is expected to grow in the
upper 4 percent range this year, down from 5 percent in 2007.
GNP policymakers, without going into details, said the minimum tax base for homes
that will be levied for the holding tax is to be raised to 900 million won
(US$792,250) from 600 million won at present.
They also said that for people who still have to pay the tax, the taxation rate
will be lowered by a third to reduce the burden of owning an expensive home, with
an additional cuts of 10-30 percent being given to people over 65.
Even in the cases of homes exceeding the 900 million won limit, the burden will
be greatly reduced. In the case of a home worth 1 billion won, the burden will
fall from 2.60 million won to 200,000 won, while those living in homes worth over
1.5 billion will only have to pay 1.20 million won, down from 7.35 million won.
"In effect, the changes should allow for most people owning a single home to pay
less in taxes," an official source said following the meeting. He added that the
measures will be equal to about 2.45 trillion won in tax cuts by 2010.
In 2007, the total amount of comprehensive holding tax collected reached 2.48
trillion won, with numbers forecast to rise to a little over 3 trillion won this
year if no changes are made.
Besides reducing burden on homeowners, the plan will scrap or reduce the tax
burden on owners of commercial real estate and unused land.
The comprehensive holding tax, which levies taxes on all real estate holdings by
a household, was first introduced in 2005, although it has come under attack from
conservatives, who allege it is a form of dual taxation that penalizes the rich.
People who pay the comprehensive tax at the end of the year are all obliged to
pay similar property and landholding taxes that are levied in July and September,
regardless of market prices.
Related to the agreement reached by the ruling camp, some experts raised doubts
about the positive effect it will have on the overall economy.
"The total size was not overly large, so the impact on consumption and the
overall economy will be limited," Park Jae-ryong, an analyst at the Samsung
Economic Research Institute, said.
Others like Kim Jeong-sik, an economics professor at Yonsei University, said
lowering taxes could help spending to a certain extent, but raised concerns that
it could fuel real estate speculation.
"Any such action should be taken in concert with measures to clamp down on
speculation," the expert said.
He added that since the benefits are concentrated on relatively affluent
households, the move may increase the gap between the haves and the have-nots,
which is bad for social cohesion.