Korean Government To Cut Capital Gains Tax

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

13 August 2001

The Korean Government is planning to reduce capital gains tax on real estate next year in an attempt to reinvigorate the sluggish property market and stimulate the construction industry, according to a recent report in the Korea Times. A ranking official at the Ministry of Finance and Economy is quoted as saying that the government plans to 'slash higher tax rates for capital gains in a way to simplify the tax system and ensure fair taxation,' and indicated that the CGT rate would come down by a considerable margin.

If implemented, the reduction plans will have little effect on the balance of the national budget, because the capital gains tax accounts for a relatively small portion of tax revenues. However, the official ruled out the possibility of a cut in the rates of income and corporate tax in 2002, as these account for a larger portion of government revenue. 'It will be hard to reduce income and corporate taxes because lower tax rates could undermine the government's efforts to maintain a balanced budget due to a sharp fall in tax revenue,' he said.

However, he added, the government does want to reduce the tax burden on the Korean public, and is planning to offer more deductions for the middle and lower bracket wage earners who have been suffering as a result of corporate restructuring. The government is apparently also considering revising irrational tax regulations on corporations, and offering more tax breaks to small and medium enterprises in order to jump-start the stalled economy.

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