Constitutional Court rules real estate tax 'unconstitutional'

(ATTN: UPDATES paras 2, 3 with court verdict, tax reform bill in parliament,
critic's quote)
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 previous liberal government of Roh Moo-hyun but now strongly opposed by
Lee.
"The comprehensive real estate holding law, which levies taxes on a consolidated
family basis, contravenes the Constitution as it works adversely to married
couples and those who form a household, compared to singles and couples formed by
common-law marriage," said Lee Kang-kook, the court's chief justice.
The verdict now clears the way for the Lee administration's push for a reform of
the tax law, which awaits parliamentary approval.
Seven groups of high-end homeowners, mostly from an affluent district in southern
Seoul, have been filing constitutional complaints since 2006 claiming the tax is
unfair and overlaps with other property taxes. They argue the law "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 curb real estate speculation by multiple homeowners.
It imposes a 1-3 percent tax on those owning property worth 600 million won
(US$430,137) or more.
The court found, however, that 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 protection of family values.
"The protection of marriage and individual families is of much greater value than
the stabilization of the real estate market or the prevention of tax evasion,
which are the purposes of the real estate tax law," the chief justice said.
In a warning to conservatives, Roh once said he "will make the real-estate
holding law more difficult to amend than the Constitution."
His pledge did not hold long, however. The Finance Ministry, which initially
backed the tax under Roh, changed its position and announced in September that it
will 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
as his conservative Grand National Party pushes for approval of the tax reform
bill submitted in late October. With 172 seats, the ruling party holds a majority
of the 299-member parliament.
Civic groups and opposition parties warned that the cuts will only fan real
estate speculation and 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.
"The government's push for scrapping the real estate tax law will serve as fuel
to trigger a fresh season of candlelights," Lee said.
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)