Real Estate Omnishambles Befuddles Even Accountants

  • By Chosun Ilbo Columnist Kang Kyung-hee

    August 07, 2020 12:58

    Property owners in Korea are being advised to consult at least three tax accounts before selling their apartments because taxes have become so complicated that one accountant is highly likely to get it wrong, which could cost owners hefty punitive charges.

    Things are so bad that a growing number of accountants are refusing to handle clients who want advice on how to avoid or reduce taxes. Accountants are afraid of shouldering the risk of lawsuits and surtaxes their clients might have to pay. One accountant is now a popular lecturer for offering tips on how to minimize taxes. Even National Tax Service workers say they have to rely on manuals to keep abreast of the ever-changing rules.

    The Moon Jae-in government has announced 23 different sets of real-estate regulations, and this has led to an absurdly complicated system of property taxes, which differ according to how many homes a taxpayer owns, where the homes are, and when they bought them. The tax scheme is even more complicated for former owners of multiple homes and is said to involve 30 variables. A whopping 75 percent of queries posted on the NTS’ website in July involved real estate taxes.

    One person who would have paid a few million won in taxes after selling a W900 million home ended up paying more than 10 times that after shifting the ownership to a corporate entity (US$1=W1,186). Once he had done it, a law was passed raising all real estate taxes at once, resulting in a top rate of up to 79.2 percent including the maximum 72 percent plus a local income tax of 7.2 percent. This is why accountants would rather have nothing to do with it.

    Adam Smith, the "father of economics," said taxation must be based on four principles -- fairness, certainty, convenience and efficiency –- and Korea's real estate taxes now militate against every one of them. Nobody seems to have any idea of how much taxes must be paid when a person sells a house or passes it on to his or her children. Koreans would gladly put up even with this complexity if it was effective in taming soaring real-estate prices. But it is not, and has on the contrary driven up prices even further. It remains a mystery who is responsible for creating this omnishambles.

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