Property Tax That Departs from Tax Principles Must Be Reexamined from the Ground Up

The French Revolution, which began in 1789, was sparked by a tax issue. At the time, France imposed various taxes on commoners, including land taxes and property taxes, while exempting the 2% made up of nobles and clergy. As a result, the 98% of citizens who bore the heavy tax burden grew angry at the nobles and clergy, who paid no taxes and were busy accumulating wealth, and the French Revolution broke out in the course of expressing that discontent.

Just as irrational taxation became the spark for a great revolution, public consensus on the tax system is an indispensable element in maintaining and developing a nation. A tax system that lacks social consensus is bound to face tax resistance and undermine trust in the government.

Excessive taxation lay behind not only the French Revolution, but also popular resistance movements such as the Donghak Revolution and the American War of Independence. In that sense, it is necessary to reflect on whether the Comprehensive Real Estate Holding Tax—which faces annual constitutional controversy and continues to provoke strong taxpayer resistance—is a rational tax.

First, the Comprehensive Real Estate Holding Tax has lost its legitimacy because of failed real estate policy. As even the Constitutional Court acknowledged, it has resulted in restricting citizens’ property rights by imposing the tax on many single-home owners.

Excessive government regulation caused real estate prices to surge, and the aggressive increases in both the Comprehensive Real Estate Holding Tax rate and officially assessed property values brought middle-class households and long-term single-home owners into the tax net. In Seoul, the problem is so serious that 60% of those subject to the tax are single-home owners. Many citizens have not even realized their gains from rising home prices, yet they are now forced to pay a Comprehensive Real Estate Holding Tax that has more than tripled from last year.

Because the tax is assessed solely based on the number of homes owned, it has also lost fairness, a core principle of taxation. By targeting not overall economic capacity but only real estate—particularly whether one owns multiple homes—it has created many side effects.

No country in the world imposes punitive taxes based on the number of homes owned, so much greater caution should have been exercised in introducing such a system. The government claims its goal is to curb speculative demand, but in reality it has resulted in branding regional owners of multiple homes and people who inherited homes as “speculators” overnight.

A recent petition by a couple in their 60s, which drew public attention, is a representative case. In order not to become a burden on their children, this couple purchased two homes in the Seoul metropolitan area as retirement assets, but appealed in frustration that they now had to pay as much as 1.1 million won in the Comprehensive Real Estate Holding Tax. The elderly couple protested, saying, “In Seoul, there are many jeonse leases worth over 2 billion won, so it is unfair to have to pay the Comprehensive Real Estate Holding Tax simply because we own two homes that together are not even worth 900 million won,” adding, “Is it a crime that we worked hard when we were young?”

The most important factor to consider in operating a tax system is taxpayers’ trust. Fundamentally, people must be confident that the taxes they pay will be used for the nation’s public services—in other words, to protect individual freedom and property rights.

The Comprehensive Real Estate Holding Tax, which continues to face backlash in the form of constitutional lawsuits and tax tribunal appeals, has failed to persuade taxpayers. As resistance has intensified, the government, mindful of votes ahead of elections, has been giving the appearance of easing the burden only bit by bit. This does not help solve the fundamental problem.

Rather than making partial fixes to the Comprehensive Real Estate Holding Tax, which runs counter to basic tax principles, it is now necessary to conduct a full-scale review. This is because it has become clear that the tax, in force for 16 years, has failed to meet its policy goal of stabilizing real estate prices. By ignoring tax principles for the sake of political slogans, the government has only fueled taxpayer backlash and confusion in the real estate market.

As real estate prices continue to rise, the number of people subject to the Comprehensive Real Estate Holding Tax is expected to increase further next year, prolonging nationwide confusion. Though belated, I propose that we reconsider the tax from the ground up, bearing in mind the maxim that “the history of revolution is the history of tax resistance.”

Eun-kyung Kwak

Director of Corporate Culture, Center for Free Enterprise (CFE)

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Original title: 조세의 원칙에서 벗어난 종부세, 원점에서 재검토해야

Author: Eun-kyung Kwak

Date: 2021-12-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=24471