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Real estate taxes in South Korea: highly computerizedSouth Korea has one of the world's most highly computerized real estate taxation systems, but this automation causes tax collectors problems by shining a critical light on unequal property evaluations. Wide variation in taxes on comparable real estate is certainly not unique to South Korea. But, the country's national computer system and statistical modeling for property valuation makes it easier for property owners to see unfair assessments. These are some of the findings of a study of real estates taxes in 14 countries published in the book, "An International Survey of Taxes on Land and Buildings," by Joan M. Youngman and Jane H. Malme of the Lincoln Institute of Land Policy in Boston. While access to property tax and sales records varies around the world, the entire assessment database is available online for public inspection in South Korea. Other than South Korea, only Sweden makes all property tax records nationwide available online to the public. (A few county assessors in the United States have recently made their tax data files available online through the Internet.) South Korea, with a population of 42 million, has experienced an average 7.0 percent economic growth rate for the past 25 years. The gross domestic product grew by more than 11 percent annually in the late 1980s, with unemployment below 3.0 percent. Like the economic growth in other Pacific Rim countries, the tremendous business climate in South Korea led to sharp increases in land values. To reduce land speculation, a land value increment tax was imposed. This tax is applied to unimproved property, business property not being used for business purposes, and unoccupiedfarm and forest lands. This measure was designed to be imposed every three years, but has been applied annually in cities where property values were increasing rapidly. The anti-speculative property tax measures that followed provide dramatic examples of government efforts to dampen land price inflation. This tax is 50 percent of the increase in the land value above what is considered the natural economic increase throughout the country for the taxable period. This implied increase in real estate value is taxed whether or not there has been a profit through a sale. Before this anti-speculation tax law was passed, it was expected to face severe political opposition. However, the legislation received support from both the ruling and the opposition parties and there has since been no widespread criticism of the law. South Korean government officials credit this law with a reduction in land speculation. Because assessed valuation is generally about 15 percent to 20 percent of full market value, the effective tax rate is only one-fifth of the potential tax rate. There are substantial variations in this assessment ratio with different types of real estate and in different parts of the country. Generally, rapid increases in land prices in metropolitan areas has meant that urban property is assessed at lower ratios of fair market value than rural property. The anti-speculative measures, along with other government efforts, have brought urban and rural real estate taxes closer to a market value balance. Of the 30 million parcels of land in South Korea, some 25 million are subject to property taxes. As in most countries, certain types of real estate are exempt from assessments. In South Korea, exempt real estate includes land and buildings used for religious purposes, hospitals, government-owned land, museums, and real estate used for education. Six years ago, South Korea combined land valuation methods for property taxation, transfer taxation and eminent domain awards into one system, called the Official Land Value System, supervised by the Ministry of Construction. To establish benchmarks for real estate values, a sample of 300,000 parcels was selected and appraised. This sampling was designed to insure that the range between the highest and the lowest values not exceed 20 percent. The values of the sample parcels are monitored by private appraisers under contract with the government. The real estate taxes for individual parcels are then derived from the values established by samples, with adjustments for a parcel s size, location, layout, use and other characteristics. Each year more than 32 physical and location characteristics for every parcel in South Korea are surveyed. To establish fair market value for individual parcels, the benchmark from the sampling of 300,000 parcels are compared to actual sale prices using computer assisted modeling techniques. The value from this technique sometimes differs sharply from traditional assessments based on visual inspection of a property. Disparities in real estate assessments caused considerable public opposition to elements of the new tax law in the past several years, and consequently the government has not been able to put the system into full operation. Because of citizen resistance, the government began developed a longer range plan several years ago. As a percentage of government revenues in 14 countries, the yield from real estate property taxes is the lowest in South Korea at 1.8 percent. The United States is highest at 14.2 percent. Other articles in this series: Real estate taxes in Chile |
By Kenneth V. Smith