Politicians agree on revocation of heavier realty transfer tax

The ruling and opposition parties reached tentative agreement on Monday to increase the threshold level of annual income subject to the highest income tax rate (38 percent) from the current 300 million won (285,000 U.S. dollars) to 150 million won (142,000 dollars), and revoke a heavier transfer tax levied on owners of multiple homes. As for corporate tax, they are set to increase the minimum tax rate at which a company should pay without fail even if the company benefits from various tax reductions and exemptions from the current 16 percent to 17 percent.

The taxation subcommittee under the parliamentary Strategy and Finance Committee agreed on these and others on Tuesday, and decided to hold a general meeting to finalize the plans. The agreement was reportedly reached through a “big deal” between the ruling and main opposition parties.

Lee Yong-seop, a member of the subcommittee, said, “In return for accepting revocation of a heavier transfer tax on owners of multiple homes demanded by the Saenuri Party, the ruling and opposition parties agreed to lower the threshold level of taxable annual income (the standard amount by which to levy tax) subject to the highest income tax rate from 300 million won (285,000 dollars) to 150 million won (142,000 dollars).”

The Saenuri Party included a revision bill to the Income Tax Act, which entails the revocation of a heavier transfer tax on owners of multiple homes, in the list of priority bills for deliberation within the current parliamentary session in order to help galvanize the real estate market. Under the system of a heavier transfer tax levied on owners of multiple homes, which was introduced in 2004, an owner of two homes is required to pay transfer tax amounting to 50 percent of the gains from the transfer when he or she sells one of the two homes, and an owner of three homes is required to pay transfer tax worth 60 percent of such gains. However, as the realty market has been in slump since 2009, the system has not been applied from then to today. It was rumored that the ceiling on jeonse (rental home based on lump sum key deposit) and monthly rent prices, and the tenant’s right to demand one-time, one-year renewal of lease for commercial property, measures that the Democratic Party has demanded, would be deliberated this time around as well, but they have been excluded due to objection by the government and the ruling party, which are concerned about negative effects of the measures on the realty market.

In return of making concession in the revocation of the heavier transfer tax, the Democratic Party has secured the first “tax hike on the rich” by the Park Geun-hye administration. The Saenuri Party demanded that the threshold level of annual income subject to the highest tax rate be lowered from the current 300 million (285,000 dollars) won to 200 million won (190,000 dollars), but the Democratic Party’s suggestion (threshold income level of 150 million won) was ultimately accepted.

If the revision bill to the income tax act, which was agreed upon by the rival parties on Monday, clears the main assembly, the number of taxpayers who are subjected to the maximum income tax rate will increase by 124,000, which could translate into 320 billion won (304 million dollars) in additional tax revenue. The ruling party is believed to have accepted the opposition’s demand due to serious concern over deficit in tax revenue next year.