South Korea To Decide On Property Tax Cut
19 July 2013
Posted by: Author: Mary Swire
Author: Mary Swire
Amidst signs of a dispute brewing between ministries, the South Korean Finance Ministry has indicated that a final government decision on whether to extend property tax breaks that expired at the end of last month will be taken by end-September 2013.
In April this year, while a capital gains tax exemption on buyers of homes valued at less than KRW900m (USD805,500) was maintained for all of 2013, an exemption from property acquisition tax was granted, but only until the end of June. A 50 percent cut in the acquisition tax had also been in operation in 2012.
The impending demise of the acquisition tax break was reported to have caused a spike in housing transactions last month, together with a fear (which appears to be borne out by the first data on house purchases in the first half of July) that the South Korean property market will fall back sharply again without a further tax stimulus.
The Ministry of Land, Infrastructure and Transport has therefore proposed that, at least, an acquisition tax cut should be reinstated immediately, and further that it should be made permanent, rather than temporary as it was previously. That has, however, been opposed by the Ministry of Security and Public Administration because of the effect it would have by causing substantial revenue losses on local government finances, as the acquisition tax is a major municipal income source.
To scotch that emerging ministerial dispute, Finance Minister Hyun Oh-seok, who is also the Deputy Prime Minister in charge of ministerial coordination, has now had to confirm that, while it was probable that a permanent cut in acquisition tax could form part of a renewed Government's package to stimulate the country's property market, further discussions were necessary to make up the consequent loss in local government finances by the reallocation of other taxes or subsidies from central government.
A final decision on the issue, he added, is likely to be taken by September this year, before the Government finalizes its budget for 2014.