Constitutional Court rules real estate tax partly unconstitutional

By Kim Hyun
SEOUL, Nov. 13 (Yonhap) -- The Constitutional Court ruled on Thursday that a law levying heavier taxes on high-end home owners is partly unconstitutional, vindicating President Lee Myung-bak's proposed tax cuts to boost the economy.

The ruling was the first judiciary interpretation of the comprehensive real
estate holding tax levied on South Korea's top 2 percent, which was implemented
under the government of Lee's liberal predecessor, Roh Moo-hyun, but now strongly
opposed by Lee.
"The comprehensive real estate holding law, which levies tax on a consolidated
family basis contravenes the Constitution" by discriminating married couples
against unwed individuals, said Lee Kang-kook, the court's chief justice.
The progressive tax has caused a sharp divide along socioeconomic and party lines.
Seven groups of high-end homeowners, mostly from an affluent district in southern
Seoul, have filed constitutional complaints since 2006, claiming the tax is
unfair and overlaps with other property taxes. They claim it "violates one's
property rights and the principles of a market economy and private ownership,"
according to documents released by the Constitutional Court.
Roh levied the tax under the principle of wealth-distribution, claiming it would
help the lower classes and cash-strapped provincial governments and curb real
estate speculation. It imposes a 1-3 percent tax on those owning property worth
600 million won (US$430,137) or more.
The court found, however, the family-based taxation regime, which determines the
taxable amount by combining the assets of all members of a single family rather
than on an individual basis, discriminates against married couples and thus
contravenes the Constitution's family values.
The court said "The protection for marriage and family lives are a much greater
value than the stabilization of the real estate market or the prevention of tax
evasion, which are pursued by the real estate tax law."
Roh once said in a warning to conservatives that he would "make the real-estate
holding law more difficult to amend than the Constitution." His pledge did not
hold long.
The Finance Ministry, which initially backed the tax under Roh, announced in
September that it was changing its position and that it would now raise the
minimum tax base to 900 million won and lower the tax rate to 0.5-1 percent. The
move will halve the number of households subject to the surtax to 161,000 from
the current 387,000.
Finance Minister Kang Man-soo, perceived by many as emblematic of Korea's wealthy
elite, once compared the ownership tax law to regulations imposed in Germany
under Adolf Hitler, who Kang said "enacted laws with the backing of majority
support."
With the court's ruling, President Lee's proposed tax cuts will now gain momentum
despite warnings from civic groups and opposition parties that the cuts will
serve to exacerbate the nation's already-wide income gap.
Some 50 civic organizations, including Lawyers for a Democratic Society and Civic
Solidarity for Participatory Democracy, were campaigning for the suspension of
the government's tax reform plan and the revival of candlelight protests, said
Lee Sang-min, a civic activist.
Candlelight rallies in the summer plunged President Lee's approval ratings to
nearly 10 percent following his controversial decision to resume U.S. beef
imports.
The president's ratings have since recovered, hitting 25.1 percent this week,
according to the Korea Society Opinion Institute, a private polling agency.
A parliamentary investigation, meanwhile, is under way into allegations that
junior officials under Kang had contacted court officials ahead of Thursday's
ruling, suggesting the minister may have tried to influence the decision.
hkim@yna.co.kr
(END)