South Korean Real Estate Tax System Criticized for Ignoring Inflation

South Korea's real estate tax system, particularly the capital gains tax, fails to acknowledge the impact of inflation, according to columnist Song Pyung-in. The argument is that claims suggesting the long-term holding period deduction for capital gains tax is meant to offset inflation are fundamentally flawed, as taxes are levied upon sale, not annually based on price fluctuations.

The analysis highlights a perceived paradox in the evolving tax system. Even with proposed changes that eliminate holding period deductions but increase residential period deductions, the author calculates that taxes on selling a property that doubled in value might actually decrease. For instance, selling a home bought for 1 billion won and now worth 2 billion won could result in significantly lower capital gains tax under the new system compared to the old one, a point the author finds astonishing and indicative of populist policies.

The article further examines the situation for non-resident, single-home owners and multi-home owners. It suggests that for non-residents selling properties that have doubled in value, the tax increase might be manageable. However, for those selling properties that have tripled in value, the tax burden increases substantially, potentially incentivizing them to occupy their properties. The author criticizes the public outcry over the total amount of rent, even when a non-resident owner moves into their own property, arguing that a loss of objectivity prevents simple calculations.

Ultimately, the piece advocates for a tax system grounded in fairness, where taxes are levied on realized gains at rates comparable to or exceeding those on labor income. The author proposes that capital gains from property sales should be taxed at rates at least as high as those for earned income, with provisions for deferring taxes when a homeowner moves without realizing immediate gains. However, when gains are realized, taxes should be applied to the cash-out amount, ensuring a fair contribution from property appreciation.