Abstract

There is controversy as to the validity of the current central governmental policies to reduce inhome acquisition tax rate and the expansion of local finances. The purpose of this study is toinvestigate the problems of this governmental policy(he reduction in home acquisition tax rate), andto provide improvements of the real estate tax system for the financial expansion and real estatepolicies of local governments. The problems of current governmental policies are as follows. First, the political basis of reduction is that the acquisition tax rate is relatively higher than othercountries’. However, it should be estimated based on the transaction cost rather than on theacquisition tax rate. Actually, the transaction cost is remarkably lower than theirs. Second,spending has continually increased, inclusive of welfare expenditures, not only in the centralgovernment but in local governments. Nevertheless, the tax rate was reduced without plans tomake good the shortage, which appears to be invalid. Third, the reduction in acquisition tax rateis more likely to break the equity of tax burden, because it is limited to houses traded at over 900－million won and at 600－million won or lower. Add to that, it may cause problems regardingequity in other assets as well as in real estate. Fourth, it may be more advisable to reduce the taxrate for a certain period of time rather than indefinitely as now, in order to revive the real estatemarket to some extent. Finally, it needs to consider the fact that house leases are rapidly changingfrom yearly leases to monthly ones. As improvements of real estate tax system, in the long term, meanwhile, the acquisition tax rateneeds to be reduced subsequent to the legalization of tax assessment standards, an ensuingincrease in property tax, and the stable expansion of local finances. The results of this study provide an implication that central government should consider localgovernment’s tax revenue, in advance. And this study make a contribution in handling taxpayers’hot issue, housing policy and real estate tax system.

Keywords

• Housing
• Acquisition Tax
• Property Tax
• Local Finance
• Local Consumption Tax

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