EDITORIAL from the Korea Herald on Nov. 17)

Tax revision

The Constitutional Court's ruling on the comprehensive real-estate tax law last
week paves the way for a revision of the law which charged heavy taxes on owners
of high-end homes.

The tax, levied in addition to regular property taxes on high-value homes, was
introduced in 2005 by the Roh Moo-hyun administration as a way to curb rampant
real-estate speculation. The comprehensive real-estate tax, by taxing the richest
2 percent of households, was also a tool for wealth redistribution.
On Thursday, the country's top court found that the law, in assessing taxation
based on the total value of properties owned by a household, rather than
individual owners, was unconstitutional because it discriminated against
marriage.
The comprehensive real-estate tax law, which also charged single residential
property owners who have been living in a house for a number of years with the
additional tax, was found to be "inconsistent with the Constitution."
The Constitutional Court's ruling now allows for the Lee Myung-bak government to
deliver on its campaign pledge to revamp the "rich men's tax." The ruling Grand
National Party is moving swiftly to revise the law and given its absolute
majority in the National Assembly, revision of the law is inevitable.
However, there is already discord even among the GNP party leadership on how to
revise the tax law. The government's reform bill, submitted to the parliament
before the Constitutional Court ruling, raises the tax threshold to houses priced
at 900 million won from the current 600 million won. It also lowers the tax rate
from the current 1 percent to 3 percent to 0.5 percent to 1 percent.
With the new court ruling, if the government's reform bill were enacted, only
spouses owning properties worth up to 1.8 billion won - or 900 million won each -
will be subjected to the tax. The ruling party's chief policymaker Yim Tae-hee
argued for lowering the government-proposed tax threshold to 600 million won,
obviously mindful of the accusation by the opposition parties that the government
is cutting taxes only for the rich.
On the other hand, Grand National Party floor leader Hong Joong-pyo spoke against
attempting to combine the comprehensive real-estate tax with property tax, the
ultimate goal of the GNP as far as the controversial tax is concerned. Saying
that the comprehensive real-estate tax law is still valid - the Constitutional
Court found that the basic motive and purpose of the law was constitutional -
Hong said it should not be tied to the property tax. He went on to say that even
the Constitutional Court recognized that the wealthy should pay more taxes.
Adding to the confusion is the Democratic Party, which declared its opposition to
the Constitutional Court ruling and said it would resist attempts to revise the
law. The National Assembly is pressed to act quickly on revising the
comprehensive real-estate tax law as the tax will be collected starting Dec. 1.
The government's proposal needs to be adjusted to reflect last week's
Constitutional Court ruling - the tax threshold should be reconsidered and the
tax rate should also be refined. There is no time for squabbling.
Following the Constitutional Court's ruling, the government quickly announced
that it would give a tax refund totaling 630 billion won within this year.
However, it has not explained how it will address local provincial governments`
decreased income - the national government allocates tax income from the
comprehensive real-estate tax to local provincial governments. This will be a
double blow to local provincial governments who were hit by the relaxation of a
law that restricted development in metropolitan areas.
In revising the comprehensive real-estate tax law, the parliament should also
carefully consider the original purpose of the law. The tax was created to curb
rampant real-estate speculation. Although the real-estate market is currently
suffering from a deep freeze, a safeguard against an overheated property market
should be maintained.