By Kim Sung-jin
Staff Reporter
Some 60,000 rich landlords are expected to face increased real estate tax burden next year with the enforcement of the new comprehensive real estate tax system.
The government will impose comprehensive real estate tax rates of maximum 3 percent on individuals who own house or houses with the combined market value of over 1.1 billion won ($1 million) starting next October.
With the launch of the comprehensive real estate tax system, the tax burden for an individual who owns a 45-pyong apartment with market value of some 1.1 billion won in Taechi-dong, southern Seoul, will increase by roughly 73 percent from a 1.01 million won in 2004 to 1.75 million won in 2005. In 2005, the owner will have to pay 1.66 million won for ownership tax and 180,000 won for comprehensive tax with 90,000 won deducted to prevent double taxation, whereas in 2004, the owner only had to pay 583,000 won in property tax and 427,000 won in comprehensive land tax.
Fifty percent of the amount of the apartment value assessed by the National Tax Service (NTS) that exceed 900 million won will be subject to the new comprehensive real estate tax rate. As for the 1.1-billion won apartment, which has an NTS assessed value of 935 million won, 50 percent of the 35 million won will be subject to the comprehensive tax rate.
Moreover, it will slap tax rates up to 4 percent on individuals who possess plots of vacant land, on which no architectures exist, with aggregate market value assessed at more than 800 million won ($727,000), and up to 1.6 percent tax rate on people who own tract of lands worth more than 5 billion won ($4.54 million) for business purposes.
The economic ministries and the ruling Uri Party finalized the tax rates for the comprehensive real estate tax, a new real estate tax regime devised as a part of the government’s tax reform drive, that is expected to go into effect starting next October in a meeting held at the National Assembly yesterday.
The government decided to streamline both the current 9-grade comprehensive land tax rate system and the 6-grade property tax rate system into 3-grade rate systems.
The present six-grade property tax rate system, which impose tax rates ranging from 0.3 percent to 0.7 percent, will be simplified into three grades of 0.15 percent, 0.3 percent and 0.5 percent. Under the value assessment method of the National Tax Service (NTS), which generally underestimates the value of real estates compared to the actual market value, houses with values less than 80 million won will be subject to 0.15 percent property tax rate, those worth more than 80 million won and less than 200 million won to 0.3 percent and those worth more than 200 million won 0.5 percent.
At the same time, the government lowered the ceiling of the property tax rate. Property tax refers to a local tax assessed on property owned, such as house and land.
However, an individual who owns one or more houses with combined market value of over 1.1 billion won, or 900 million won in NTS assessed value, will be subject to the comprehensive real estate tax.
There are some 23,000 apartments and houses with NTS assessed values of over 900 million won nationwide.
If the combined value of houses owned by an individual ranges between 900 million won and 2 billion won, when reckoned by the NTS method, the owner will be subject to 1 percent comprehensive real estate tax rate. People who own houses worth more than 2 billion won and less than 10 billion won will be subject to 2 percent tax rate, and those who possess houses worth aggregate value of over 10 billion won to 3 percent rate.
The land tax rate system will be simplified to three grades of 0.2 percent, 0.3 percent and 0.5 percent, from previous 9-grade rate system ranging from 0.2 percent to 0.5 percent.
However, if the aggregate value of tract of lands owned by an individual exceeds 800 million won in market value, or 600 million won according to the NTS assessment, the owner will be slapped with either 1 percent, 2 percent or 4 percent comprehensive real estate tax rate depending on how much land he or she owns.
The land tax rates for business-use lands will also be simplified to three grades of 0.2 percent, 0.3 percent and 0.4 percent, from present 9-grade rate system with the range between 0.3 percent and 2 percent. Owners, however, will be subject to 0.6-1.6 percent comprehensive real estate tax rate if the aggregate value of the plot of land, which are used for business purposes, they own surpasses 5 billion won in market value, or 4 billion won in NTS assessed value.
The tax rate of the comprehensive real estate tax, which grafted the concept of progressive tax system to the property tax, will vary depending on how much real estate, the combined assessed values of which exceed base line monetary values set by the government, an individual owns.
Like progressive tax system, in which people who earn higher incomes pay a higher percentage of their income than those with lower incomes, the comprehensive real estate tax system will collect greater taxes from opulent land owners. The higher the value of the combined land an individual own, the higher the comprehensive real estate tax rate will be.
The ruling Uri Party plans to tender the comprehensive real estate tax bill and the bill on revised local tax system to the National Assembly for parliamentary deliberations later this month.
The government anticipates the adoption of the comprehensive real estate tax would increase the national property tax revenue by 10 percent to 3.5 trillion won. It expects the number of individuals subject to the new real estate tax law would amount to some 60,000.
Meanwhile, the economic ministries and the Uri Party is reportedly discussing ways to ease the regulation on capital gains tax on profits realized from the sale of houses to offset the increased tax burden on high-value real estate owners from the introduction of the comprehensive real estate tax. Capital gains tax is a tax assessed on profits realized from the sale of capital asset, such as stock.
sjkim@koreatimes.co.kr
