[Editorial] Rather than short-term tax fixes during a presidential term, we need a simpler, more predictable tax system

— The direction of supporting growth is positive, but selective tax support should be minimized

— Abolishing the housing-unit count standard is reasonable, but strengthening residence-based taxation risks making the market more rigid

— We must return to the tax principles of a broad tax base, low rates, and predictability

The government’s “2026 Tax Revision Bill,” announced on August 3, presented four main directions: supporting a rebound in potential growth, supporting livelihoods and local regions, tax reform for fair taxation, and rationalizing the tax system while improving taxpayer convenience. The plan includes the introduction of a domestic production tax credit and a productive finance ISA, the expansion of the Earned Income Tax Credit and the monthly rent tax credit, and broad revisions to the Comprehensive Real Estate Holding Tax, the family business inheritance deduction, and tax exemption and reduction programs.

It is positive that the revision places the expansion of growth potential and the easing of burdens on ordinary people at the forefront. Measures to promote domestic production, research and development, and investment, as well as the easing of business-history requirements for venture firms, support corporate innovation and growth. The fact that the government also eased the threshold at which tax support abruptly disappears when a small or medium-sized enterprise grows into a mid-sized company is meaningful in that it reduces the institutional discontinuity that has long hindered business growth.

Measures expanding the income requirements and payment amounts for the Earned Income Tax Credit and raising the cap on the monthly rent tax credit can also help ease the burden on low- and middle-income households struggling with high inflation and rising housing costs. Lowering the withholding tax rate for personal service providers such as delivery riders is meaningful not so much because it reduces actual tax liability, but because it improves cash flow by reducing excessive advance payments.

However, this revision is characterized less by a universal reduction in the tax burden and regulation across the market as a whole than by differentiated benefits and burdens for industries, financial products, regions, and housing types selected by the government. A cautious approach is needed when the government concentrates the domestic production tax credit on specific sectors and provides separate tax incentives for productive finance ISAs and BDCs, because this amounts to the government selecting promising industries and investment destinations.

There is no guarantee that the industries chosen by the government will become the winners of the future. If tax support is concentrated on certain industries, the relative tax burden on firms and sectors that do not receive support increases, and corporate investment decisions may come to be driven more by tax benefits than by market demand and productivity. The tax system should not be an industrial policy tool used to steer corporate business plans; it should provide a predictable and neutral environment in which all firms can compete fairly.

The real estate tax revisions contain both rationalizing elements and measures that risk making the market more rigid. Unifying the Comprehensive Real Estate Holding Tax rate structure based on housing value rather than the number of homes owned is reasonable in that it alleviates the problem of uniformly imposing heavier taxes on people who own multiple low-priced homes. Expanding the basic deduction for one owner-occupied home and supplementing the tax payment deferral system for elderly single-home owners are also positive in that they can reduce the liquidity burden on actual residents.

On the other hand, effectively converting the special long-term holding deduction into a long-term residence deduction and creating a deduction cap reflects an approach of using the tax system to steer the living arrangements of homeowners. A person should not be presumed to be a speculative holder simply because they cannot live in their own home due to job relocation, family caregiving, children’s education, or livelihood-related reasons. If the economic significance of the holding period is greatly reduced and only the period of residence is favored, decisions on renting out or selling housing, as well as labor and residential mobility, may be distorted.

In addition, if the reduction of the basic Comprehensive Real Estate Holding Tax deduction for non-resident single-home owners, the increase in the fair market value ratio, the creation of a tax credit cap, and the reduction of special provisions for rental housing are layered together, some taxpayers could see their burdens increase sharply in a short period. Reducing the special exemption period for temporary two-home owners from 3 years to 2 years could also make ordinary moves and housing replacement more difficult. While the heavier taxation based on the number of homes should be abolished, the system should be supplemented in a way that reflects both holding and residence periods, while providing sufficient transitional measures for existing rental housing and temporary two-home owners.

There has been progress in the family business inheritance deduction in that the deduction limit has been raised and support for third-party business succession has been newly introduced. However, if the scope of eligible family businesses and target industries is narrowed while management-period and post-management requirements are strengthened, the number of firms that can actually use the deduction may decline despite the higher cap. The focus should not be on the government-recognized form and industry classification of a family business at the expense of business continuity and job retention.

The intent of regionally differentiated preferential local tax measures, such as differentiated R&D and investment tax credits by region and tax reductions for employees of small and medium-sized enterprises, is understandable. However, business location decisions are determined not only by taxes but also by market access, labor, transport and logistics, educational and housing conditions, and the level of regulation. Rather than expanding complex regional grades and differentiated tax rates, priority should be given to improving local regulations and expanding infrastructure and living conditions.

This revision attempts to resolve at once a variety of issues with different characteristics—including growth, livelihoods, local regions, real estate, business succession, and tax evasion—through direct tax measures such as tax credits, deductions, and heavier taxation. The government’s desire to produce visible results within its term is understandable. However, this revision, densely designed with benefits and burdens in order to quickly change the choices of businesses and citizens, reveals an impatient approach that prioritizes short-term results over long-term institutional stability.

Structural problems should be addressed through regulatory and institutional reform, while the tax system should be operated simply and stably. We must build an economy in which businesses and citizens do not move in pursuit of tax benefits, but instead invest and choose where to live based on productivity and free choice.

2026. 8. 4.

Center for Free Enterprise (CFE)

---

Original title: [논평] 임기 내 단기 처방적 세제개편 보다 단순하고 예측가능한 세제가 필요하다

Author: Center for Free Enterprise (CFE)

Date: 2026-08-04

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=comment&pn=1&idx=29345