South Korea Faces Calls to Reform Taxes to Ease Asset Inequality Amid Market Boom

As South Korea's stock market surges to record highs, fueled by the semiconductor industry, and the real estate market shows signs of stimulation, concerns over widening wealth disparities are intensifying. This has led to renewed calls for the reintroduction of the financial investment income tax (FII) and reforms to property taxation to promote fairness and reduce the gap.

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The stock market's buoyancy has already led to a disproportionate concentration of financial assets among the wealthy, and the lack of proper taxation is a serious issue in terms of fairness. Given the favorable conditions in the stock market, the government must demonstrate its policy will regarding the financial investment income tax.

The financial investment income tax, initially slated for implementation in 2023 under the previous administration, aimed to comprehensively tax profits and losses from financial investments. It proposed a tax rate of 22-27.5% on combined income exceeding 50 million won from financial products. However, the current administration deferred its introduction and it was ultimately abolished by a cross-party agreement at the end of 2024. Experts like Chung Se-eun, a professor of economics at Chungnam National University, argue that with the stock market's robust performance, substantial financial assets are concentrating among the already wealthy without adequate taxation, posing a serious fairness issue.

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Our country's holding taxes are generally low. Even if you buy a lot, the burden is not significant. In other countries, the burden is such that eventually, only those who need property come to own it.

In the real estate sector, criticisms point to relatively low property holding taxes and overly generous deductions for single-home owners, which are seen as encouraging speculative property ownership and exacerbating asset inequality. President Yoon Suk-yeol himself has noted that holding taxes in Korea are generally low, making it less burdensome to accumulate properties compared to other countries. Kim Yong-beom, a senior presidential secretary for policy, emphasized the need to normalize property taxation, suggesting that adjusting holding and transfer taxes is necessary and correct. He warned that if national wealth generated by semiconductors is absorbed by speculative real estate gains, and the fruits of growth are concentrated among a few, the current boom will not last.

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Normalizing property taxation is necessary. Reasonably adjusting holding and transfer taxes is necessary and correct. If the national wealth earned by semiconductors is absorbed by speculative real estate gains and the fruits of growth are concentrated among a few, this boom will not last.

Discussions around property tax reform are expected to be detailed in the upcoming tax reform plan. Potential measures include increasing the fair market value ratio for comprehensive real estate tax calculation, which would effectively raise holding taxes without altering nominal rates. Other considerations involve segmenting tax brackets for property value and potentially increasing nominal rates for high-value homes. Additionally, reducing the long-term holding special deduction for capital gains tax for non-resident single-home owners, particularly those benefiting from the 'one excellent house' strategy, is also being considered. Currently, a single-home owner can receive up to an 80% deduction if they have owned and resided in the property for 10 years. The government is exploring reducing deductions based solely on holding periods and increasing benefits tied to actual residency.

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We need to move beyond the fixed idea of unconditionally protecting single-home owners and revise excessive tax benefits.