Chang Hee Lee, Real Property Tax in Retrospect and the Future Reform, Seoul Tax Law Review, Vol.30, No.3(2024), pp.91-163.
<Abstract>
Korean property tax system on real property consists of the two tiers of the local property tax and the national ‘comprehensive property tax’ assessed on the value of the sum of the real properties located anywhere in the nation. Incorporating various economic policies and even political motives, this two tier system is pervaded by confusing language and complicated and conflicting structures. A Supreme Court ruling of 2023, a de facto reversal of a 2015 ruling, demonstrates this problem. In 2015 the Court ruled that the full amount of the local property tax is creditable from the national tax, invalidating a ministry regulation to the contrary. In aftermath of the decision, the content of the invalidated regulation was revived in the presidential decree. In 2023, the Court upheld the decree even though the content of the decree is exactly the same as the invalidated regulation and, as argued in this paper, is contrary to the statutory language. As revealed in this episode, the current legal status of the local and national property tax system is in chaos. Rules are often inconsistent and the decrees and regulations are often beyond the boundary of the interpretive boundary of the statutes. A systematic review is unavoidable, as summarized in the following. 1. The Korean Constitution does not mandate that the comprehensive real property tax remain national tax, nor that the local property tax remain local government tax. The Constitution does not refer to the concept of a local government tax and any and all taxes are at the discretion of the statutory enactments by the National Assembly. The national versus local issue only concerns the administration of the tax, i.e., the choice between the Ministry of the Strategy and Finance and the National Tax Administration on the one hand and the Ministry of the Interior and Safety and the local governments on the other hand. 2, The argument for delegating the comprehensive real property tax to the local governments presupposes the abolition of the graduated rate of the tax. Without the graduated tax burden, it is not necessary to keep the tax at the national level. 3. With graduated tax rates on all properties in the nation, the comprehensive tax can be better managed by the National Tax Administration than the local governments in joint action or the Ministry of the Interior and Safety. History does not have to repeat itself. 4. Currently all revenue from the comprehensive national tax is transferred to the local governments. The revenue transfer is a separate issue from the design of the property tax system. Such transfer can be funded from any national tax. 5. Not crediting the full amount of the local property tax is not contrary to the Constitution. It is, however, contrary to the statutory language that the creditable tax is the full value of the property adjusted or reduced by a statutory percentage multiplied by the tax rate. The Court ruling and the Presidential decree are wrong in that they apply the adjusted value of the property to the tax rate defined by reference to the unadjusted full value of the property. This inconsistency unduly reduces the credit by the percentage of the adjustment. 6. The property tax statutes assumes that the tax will systematically reduce the market prices of the real properties and help the citizens acquire housing. It is a mis-perception confusing the tax-exclusive price with the actual acquisition cost or the tax-inclusive price. In terms of the tax-inclusive price, the property taxes and the transaction taxes work in the same way, and increase the market prices and hurts the buyers. 7. Owning multiple houses does not impair other potential buyer’s chance of buying a house any more than a single house to the extent the multiple houses in sum do not exceed the value or size of the single house. The Constitution guarantees that a person may live without culpability in the most expensive single house that he or she can afford. Given this guarantee, owing multiple houses also must be permitted within the size or value of the former’s single house. 8. Per the language of the statute, the comprehensive property tax is based on the idea of the horizontal and the vertical equity. It is a self-defeating idea. Equity will demand an alternative idea of a net wealth tax, uniformly covering real and other properties and deducting the debts of the taxpayers. 9. The property tax statutes, decrees and regulations are pervasively entangled with inconsistencies and many of the decrees and regulations can hardly be justified by the statutory languages. The whole system is vulnerable to challenges by a formal or legalistic interpreter.
<Keywords>
real property tax, local property tax, comprehensive property tax, equity.
Chang Hee Lee, Real Property Tax in Retrospect and the Future Reform, Seoul Tax Law Review, Vol.30, No.3(2024), pp.91-163.
<Abstract>
Korean property tax system on real property consists of the two tiers of the local property tax and the national ‘comprehensive property tax’ assessed on the value of the sum of the real properties located anywhere in the nation. Incorporating various economic policies and even political motives, this two tier system is pervaded by confusing language and complicated and conflicting structures. A Supreme Court ruling of 2023, a de facto reversal of a 2015 ruling, demonstrates this problem. In 2015 the Court ruled that the full amount of the local property tax is creditable from the national tax, invalidating a ministry regulation to the contrary. In aftermath of the decision, the content of the invalidated regulation was revived in the presidential decree. In 2023, the Court upheld the decree even though the content of the decree is exactly the same as the invalidated regulation and, as argued in this paper, is contrary to the statutory language. As revealed in this episode, the current legal status of the local and national property tax system is in chaos. Rules are often inconsistent and the decrees and regulations are often beyond the boundary of the interpretive boundary of the statutes. A systematic review is unavoidable, as summarized in the following. 1. The Korean Constitution does not mandate that the comprehensive real property tax remain national tax, nor that the local property tax remain local government tax. The Constitution does not refer to the concept of a local government tax and any and all taxes are at the discretion of the statutory enactments by the National Assembly. The national versus local issue only concerns the administration of the tax, i.e., the choice between the Ministry of the Strategy and Finance and the National Tax Administration on the one hand and the Ministry of the Interior and Safety and the local governments on the other hand. 2, The argument for delegating the comprehensive real property tax to the local governments presupposes the abolition of the graduated rate of the tax. Without the graduated tax burden, it is not necessary to keep the tax at the national level. 3. With graduated tax rates on all properties in the nation, the comprehensive tax can be better managed by the National Tax Administration than the local governments in joint action or the Ministry of the Interior and Safety. History does not have to repeat itself. 4. Currently all revenue from the comprehensive national tax is transferred to the local governments. The revenue transfer is a separate issue from the design of the property tax system. Such transfer can be funded from any national tax. 5. Not crediting the full amount of the local property tax is not contrary to the Constitution. It is, however, contrary to the statutory language that the creditable tax is the full value of the property adjusted or reduced by a statutory percentage multiplied by the tax rate. The Court ruling and the Presidential decree are wrong in that they apply the adjusted value of the property to the tax rate defined by reference to the unadjusted full value of the property. This inconsistency unduly reduces the credit by the percentage of the adjustment. 6. The property tax statutes assumes that the tax will systematically reduce the market prices of the real properties and help the citizens acquire housing. It is a mis-perception confusing the tax-exclusive price with the actual acquisition cost or the tax-inclusive price. In terms of the tax-inclusive price, the property taxes and the transaction taxes work in the same way, and increase the market prices and hurts the buyers. 7. Owning multiple houses does not impair other potential buyer’s chance of buying a house any more than a single house to the extent the multiple houses in sum do not exceed the value or size of the single house. The Constitution guarantees that a person may live without culpability in the most expensive single house that he or she can afford. Given this guarantee, owing multiple houses also must be permitted within the size or value of the former’s single house. 8. Per the language of the statute, the comprehensive property tax is based on the idea of the horizontal and the vertical equity. It is a self-defeating idea. Equity will demand an alternative idea of a net wealth tax, uniformly covering real and other properties and deducting the debts of the taxpayers. 9. The property tax statutes, decrees and regulations are pervasively entangled with inconsistencies and many of the decrees and regulations can hardly be justified by the statutory languages. The whole system is vulnerable to challenges by a formal or legalistic interpreter.
<Keywords>
real property tax, local property tax, comprehensive property tax, equity.