[Editorial] Another 'Battle' over Local Taxes

The city of Seongnam in Gyeonggi province has issued official notification of changes in the tax ordinances. The main changes will mean lower housing property taxes there by 50 percent. One worries we are going to see a repeat of the "property tax battle" that took place when local governments in the greater Seoul region significantly reduced their property tax rates with local ordinances meant to be resistance against the Ministry of Government Administration and Home Affairs' attempt to make property tax rates more realistic.

Seongnam's move is not to be taken lightly because it is going to be noticed for being the first resistance by a local government towards the new real estate tax schedule being implemented this year. Last year the national government combined "comprehensive land tax" with the portion of property tax that accounts for the building used as a domicile, and it chose a plan for revising the real estate taxation system, making market prices the standard for taxation. It was a landmark change that normalized real estate taxation. It used to be that houses of the same price could be taxed as much as 10 times more depending on location, and the idea behind the changes was to base taxes on actual home prices to make things fair.

It should be recommended that local governments make some of their own decisions. It is a different story, however, if they go too far and sake up the framework of the country's tax policy. The city of Seongnam says it fears there will be tax resistance without the changes, but that is not the right way to look at it. The people who will have to pay a lot more in property taxes have been paying relatively little because their taxes were set too low, and strictly speaking they have been enjoying special privileges. Furthermore the national government is being nice enough to normalize rates gradually, making sure the margin of increase does not go over 50 percent compared to the previous year. If Seongnam's city council passes the new ordinances other local governments will surely follow. If that happens the scheme to bring normalcy to the real estate market, which seeks to deter speculative real estate investment by raising property taxes while encouraging real estate transactions by lowering the transfer tax, will be have problems from the start.

In our view the national government needs to be strong in responding to this. If fundamental measures are not taken the battles could become a yearly ritual. It should consider all the options, including reducing the ability of local governments to adjust tax ordinances by amending regional tax laws. It must prevent regional selfishness from shaking up the very bones of tax policy.

The Hankyoreh, 2 April 2005.

[Translations by Seoul Selection (PMS)]