High-Price Houses Receive Tax Cuts In Korea

by Mary Swire, Tax-News.com, Hong Kong

24 September 2008

South Korea has announced this week that it is planning to adjust the rules of the country's real-estate ownership tax system in order to lower the tax burden on the property sector.

The move, which was announced by the country's Ministry of Strategy and Finance on Tuesday, will see the minimum base for the real-estate tax, which many homes in South Korea are subject to, increase by KRW300m (USD260,000) - taking it from the current KRW600m to KRW900m in an attempt to shake the housing market from its present slowdown, and exempt a larger number of households from the burden.

The tax was first introduced in 2005, and imposed solely on those in ownership of expensive properties - a decision which caused outrage amongst many who thought they were simply being penalized with an extra layer of tax.

Figures revealed earlier this year showed that 387,000 households are currently burdened by the tax, with the aim of the new proposals being to reduce this number to 161,000, which will effectively save an estimated KRW2.23 trillion by the time it's fully functional in 2010.

In the years since introduction of the tax a rapid increase in inflation has stunted economic growth, resulting in a significant slowdown in the country's property market. A major rise in the number of homes which are going unsold has occurred, and job loss within the building industry is rife.

It is hoped that by implementing the proposed changes to the property tax, these problems can be reversed.

In addition to the revisions to the ownership tax, it has also been announced that the ministry will reduce residential property tax rates to 0.5-1% from the current 1-4%, and business property tax rates to between 0.5%-0.7% from 0.6%-1.6%. In addition, those over 60 who own a single house will be given an additional 10-30% reduction.

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