Owner-occupiers of a single home would get a 1.4 billion won ($1.01 million) exemption, while owners who do not live in their single home would get 900 million won. The 500 million won gap in the comprehensive real estate tax deduction created by the government's tax reform bill now looks likely to be narrowed in parliament. With the ruling party formally calling for a review, a compromise applying the current 1.2 billion won deduction for single-home households is emerging.
According to the government and political sources on the 25th, the tax reform bill drawn up by the Ministry of Economy and Finance would apply a comprehensive real estate tax deduction of 1.4 billion won to owner-occupiers of a single home and 900 million won to owners who do not live in their home. Under the government's plan, an owner-occupier holding a home with an assessed value of 1.4 billion won would fall outside the tax's scope, while a non-resident owner would still face tax on the amount above 900 million won.
With the Democratic Party formally asking for a review of the tax burden on non-resident single-home owners, the government also considers it difficult to leave the 500 million won deduction gap in place. The options are to raise the non-resident deduction to 1.4 billion won, matching owner-occupiers, or to lift it only to 1.2 billion won, the current standard for single-home households.
Inside and outside the government, the 1.2 billion won compromise is being cited as the leading alternative. It would ease the burden on non-resident owners while preserving the reform's aim of giving greater benefits to owner-occupiers. Applying 1.4 billion won to non-resident owners as well could effectively dismantle the government's stated principle of favoring owner-occupiers.
The key question is whether the government will revise the bill itself or leave the changes to parliament. Amending the plan at the government stage would require another round of party-government coordination, adjustment of the bill's wording, a review of whether to reissue the public notice of proposed rules, and screening by the Ministry of Government Legislation. With a vice-ministerial meeting on the 27th and a Cabinet meeting on the 1st of next month ahead, time is tight.
A Ministry of Economy and Finance official said that revising the government's plan would require finalizing it at the Cabinet meeting in early next month, and that the current plan could instead be submitted to parliament and supplemented during the legislative process. For now, the weight lies with submitting the original bill first and adjusting the basic deduction and the extent of tax relief during parliament's review of the tax code.
The possibility of a last-minute government revision also remains. A revision that lowers taxpayers' burden qualifies under the Administrative Procedures Act as "prompt protection of citizens' rights," which allows the public notice of proposed rules to be skipped. Observers say the possibility cannot be ruled out that some amendments, such as raising the basic deduction for non-resident single-home owners, will pass through the vice-ministerial meeting on the 27th and reach the Cabinet meeting on the 1st of next month.
Matters governed by presidential decree, which do not require a parliamentary vote, are expected to be revised by the government over time. Representative examples are the fair market value ratio — the share of the assessed value reflected in the tax base — and the scope of what counts as "reasonable non-residence."
Koo Yun-cheol, deputy prime minister and minister of economy and finance, told the National Assembly's Special Committee on Budget and Accounts on the 24th that where there is a reasonable reason for non-residence, the government intends to resolve the issue by boldly recognizing it as residence. Whether to recognize as owner-occupancy even cases where a resident moves within the same city or province is expected to be a central point of contention.
The special long-term holding deduction for capital gains tax is also up for revision. The government's plan would phase down the deduction based on holding period, so that from 2029 up to 80% would be deducted based on the period of residence. A new cap of 1 billion won would be placed on the deduction amount.
The ruling party agrees with the reform's owner-occupier focus but takes the position that the timing of implementation and additional supplementary measures should be discussed further, given the impact on the rental market. A real estate industry official said the measure with greater force to move the market than the comprehensive real estate tax is the 1 billion won cap on the capital gains deduction, and that depending on the outcome, the Gangnam housing market could shift significantly.
The revision of the Individual Savings Account (ISA) plan is also likely to be discussed again in parliament. Under the current ISA, unused portions of the 20 million won annual contribution limit can be carried over to the following year. Contracts can also be extended after the three-year mandatory holding period passes. The government's plan, however, would abolish the carryover of the limit and cap the contract term of a general ISA at five years.
Measures to prevent "share-price suppression" aimed at reducing inheritance and gift taxes could also be reworked. The government's plan would tax such shares — including those of companies whose price-to-book ratio (PBR) has stayed in the lower ranks of their industry for a long time — by raising their assessed value by at least 30%. With criticism that the rule is easy to avoid because it applies to only about 130 companies, a plan to expand the target companies and the criteria for judgment is under review.
