Constitutional Court rules real estate tax '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 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, is discriminatory against and adverse to married couples," compared
to singles, said Lee Kang-kook, the court's chief justice.
"Thus, it contravenes the Constitution's Article 36" that ensures the state
protection for marriage and family, he said.
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 filed constitutional complaints since 2006 claiming the tax is unfair
and violates the principles of a market economy.
Roh levied the tax under the principle of wealth-distribution. High taxes on
expensive homes will discourage real estate speculation by multiple homeowners
while helping the lower classes with more welfare benefits, he said. It imposes a
1-3 percent tax on those owning property worth 600 million won (US$430,137) or
more.
The court widely upheld the spirit of the tax law, but ruled its technical
formula discriminatory.
Married couples are taxable while singles or couples by a common-law marriage are
often not, according to the family-based taxation regime, which determines the
tax amount by combining the assets of all members of a single family rather than
on an individual basis, it noted.
"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.
The court also ruled single homeowners and the elderly who have no income should
be exempt from the tax, regardless of their property value. Such decisions, while
backing the real estate tax in principle, virtually reduces the taxable
population to a very few.
In a warning to conservatives during his presidency, 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 to the assembly 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.