OECD: “South Korea should raise property holding taxes and lower transaction taxes”

The Organisation for Economic Co-operation and Development (OECD) has advised South Korea to rebalance its property tax system, advocating for a shift from transaction taxes to holding taxes. The organization noted that South Korea's property tax structure disproportionately relies on transaction taxes like acquisition tax, while taxes on property ownership, such as property tax and comprehensive real estate tax, are relatively low.

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The tax system relies excessively on transaction taxes compared to the OECD average, and the proportion of holding taxes, which are relatively efficient, is small.

In its "2026 Korea Economic Report," the OECD stated that South Korea has made significant progress since joining the organization in 1996 but requires various structural reforms. The report highlighted that South Korea's property tax revenue as a percentage of GDP (3.0%) is nearly double the OECD average (1.6%). However, holding taxes constitute only 29.4% of this revenue, far below the OECD average of 56.0%.

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Low-income households living in affordable apartments may find it burdensome if holding taxes are increased, so this needs to be considered over a considerable period and in the long term.

The OECD also addressed issues within South Korea's income tax system and business inheritance tax deductions. It pointed out that 32.5% of wage earners pay no income tax due to various deductions and exemptions. Furthermore, it noted that capital gains tax on stocks is not levied except for a very small number of major shareholders who own over 5 billion won in a single stock. The organization suggested that the business inheritance tax deduction, which has expanded over time, is being exploited to avoid inheritance taxes and needs revision.

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The basic tenet of fair taxation, that where there is income, there should be tax, is not functioning properly.

These recommendations come as the South Korean government prepares to announce its tax reform package at the end of July, which reportedly includes strengthening holding taxes. The OECD's advice lends international support to the government's proposed policy direction. The organization also suggested increasing indirect taxes like value-added tax and raising excise taxes on items like tobacco and alcohol to address rising aging-related expenditures.

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The scale of the deduction has expanded over time and there are concerns it is being misused to avoid inheritance taxes, so it needs to be reviewed and supplemented to mitigate the risk of inheritance tax avoidance.