Economic development in South Korea has continued to attract many people to the capital and its vicinity, but especially to Seoul. In the city center and downtown areas, high-rise buildings have been erected one after another. The floating population downtown has grown, and severe traffic congestion has increased along with the number of vehicles. The increased national income in the 1980s and 1990s in particular led to an explosive demand for automobiles and transportation systems, overloading the transportation infrastructure and facilities and greatly exacerbating the existing traffic problems.

Large buildings, wedding halls, department stores, and similar specific-purpose facilities choke the roads in and around the downtown areas and contribute to socioeconomic loss. In discussions that followed, demands arose to require such large facilities responsible for the congestion to compensate the area for this loss. Out of these discussions came a proposal for a “congestion impact fee” for such facilities.
Enforcing the congestion impact fee, as defined by the Urban Traffic Readjustment Promotion Act, resulted in facility owners paying a fee in accordance with the “causer-pays” principle so as to indirectly rein in the concentration of facilities that cause congestion in the city and to secure funds for improvement of the city traffic situation. While some facility owners have objected to this additional financial burden, general public consensus was reached on the necessity of a system designed to reduce the negative impact of traffic congestion and provide quality transportation services to the public. This congestion impact fee enacted by the government was then adopted by the City of Seoul as the “City of Seoul Ordinance on the Reduction of the Congestion Impact Fee, Etc.”, specifying the target facilities, exemptions, methods for calculation, etc. The system was first implemented in 1990 in Seoul; since then the impact fee has been imposed on facilities once each year.
Two of the main purposes for adopting the system in Seoul were to provide a means of additional funding for expanding and improving the transportation infrastructure and to encourage large congestion-causing facilities to relocate to the city outskirts.

Basis for Levying the Congestion Impact Fee
  1) Revision of the Impact Fee System and the Basis for Levy

The legal basis for the congestion impact fee is in the Urban Traffic Readjustment Promotion Act revised and promulgated on January 13, 1990. The specific conditions for levying the impact fee are set out in the Enforcement Decree to the Urban Traffic Readjustment Promotion Act, which were revised and promulgated on September 25 of the same year. The congestion impact fee came into effect on July 1, 1990. The target areas were cities with populations of 300,000 or more, or with 100,000 or more and approval from the city mayor or provincial governor. The levied fees were deposited in a special account for the local city transportation program, to be used to improve transportation systems and facilities (e.g., introduction of bus-only lanes).

With the City of Seoul Ordinance on Fees to Reduce Impact of Congestion, Etc. in place, Seoul also had a basis upon which it could levy a congestion impact fee on select facilities. The impact fee is calculated by multiplying the total floor area of the facility by the unit congestion impact fee, and then again by the congestion coefficient. The unit congestion impact fee is 350 or 700 Korean won per m² of the floor area; the congestion coefficient varies by location and use of the facility – from 9.83 for a department store in downtown Seoul to 0.47 for a factory on the outskirts of a city directly controlled by the central government. The congestion impact fee is levied on owners of facilities with a total floor area of 1,000 m² or more. For facilities with multiple owners, each owner pays an amount proportionate to his/her share of ownership.
 
1) Unit Congestion Impact Fee
In principle, the Enforcement Decree to the Urban Traffic Readjustment Promotion Act determines Seoul’s unit congestion impact fee, but the city also has its own congestion impact fee ordinance, which dictates this fee. The unit congestion impact fee is KRW 350 for facilities with less than 3,000 m² in floor area, or those with 3,000 m² or more in floor area but with parking for fewer than 10 cars; and KRW 700 for facilities that are 3,000 m² or larger in floor area and have 10 or more parking spots. The unit congestion impact fee is more specific than what is set out in the Urban Traffic Readjustment Promotion Act, with the unit fee higher for facilities that occupy a large area. Fees are higher than in the City of Incheon or the Gyeonggi Province because Seoul is more crowded and sees higher levels of traffic and congestion due to large facilities.
 
<Table 1> Unit Congestion Impact Fee by Local Governments in the Seoul Metropolitan Area

Sources: Article 19 of the Urban Traffic Readjustment Promotion Act, the ordinances of local governments on the congestion impact fee (Seoul/Incheon/Gyeonggi).
 
2) Congestion Coefficient
The congestion coefficient refers to the level of congestion caused by the targeted facilities. The coefficient is fundamentally dictated by Article 19 of the Urban Traffic Readjustment Promotion Act (refer to Table 1 above), and is higher for large retail facilities that cause relatively higher levels of traffic such as department stores and shopping centers (5.46) and for transport facilities such as passenger and freight train stations (4.13 – 5.56). Based on the congestion coefficient set forth in the Enforcement Decree to the Urban Traffic Readjustment Promotion Act, local governments are allowed to introduce their own ordinances and double the coefficient if they wish. The City of Seoul uses the basic coefficient in the Urban Traffic Readjustment Promotion Act, while city ordinances adjust it as necessary, after the city has inspected the facilities that cause congestion and come up with higher coefficients for facilities related to sales, recreation, amusement, sports, and business as identified in Table 2 below.
 
<Table 2> Congestion Coefficients by Type of Facility

Source: Article 19 of the Urban Traffic Readjustment Promotion Act, the Seoul Ordinance on the Congestion Impact Fee.

Exemption from the Congestion Impact Fee
The Urban Traffic Readjustment Promotion Act does not charge facilities that do not significantly increase traffic or those that are for public interest as well as facilities used for registered non-profit organizations. Specifically, these include: foreign embassies and international organizations; facilities owned by foreign volunteer organizations; residential buildings; shared community facilities for the New Town Program; facilities owned by political parties; religious facilities; kindergartens, primary/middle/high schools, and other educational facilities; museums and art galleries; and libraries.
 
Use of Funds from Levied Impact Fees
Pursuant to the Urban Traffic Readjustment Promotion Act, funds collected through the congestion impact fee system and funds from other transportation-related programs (parking fees, congestion fee, etc.) are to be invested in transportation-related programs, specifically designed to: expand transportation facilities and infrastructure and improve their operation; conduct city transportation-related research and studies; improve public transit services and the management of public transit operation (screening doors in subway stations, subsidies for the integrated transfer discount system, construction of bicycle trails, etc.); facilitate management of and measures to enhance transportation demand; improve roads and transportation safety facilities/infrastructure (surveillance cameras, improved pedestrian environment, etc.); and promote good parking demand management and orderly parking (construction of parking lots and transfer centers, enforcement of illegal stopping, parking controls, etc.).
 
Stronger Regulation of Transportation Demand in Collaboration with Transportation Demand Management Programs by Private Companies
To promote the congestion impact fee system and encourage companies to voluntarily control transportation demand, the City of Seoul adopted a transportation demand management system for companies. It allows companies to voluntarily implement a traffic volume reduction program, with the authority to reduce the congestion impact fee by 1% to 100% based on the outcomes. The percentage of the impact fee reduction by activity is as follows:

<Table 3> Impact Fee Reduction by Activity

Source: Adapted from the City of Seoul Ordinance on Fees to Reduce Impact of Congestion, Etc.

More Facilities Participating in the Congestion Impact Fee System and Greater Investment in Transportation Programs
In Seoul, the congestion impact fee system began in 1990, and the number of participating facilities has gradually grown. As of 2013, a total of KRW 105.542 billion has been collected from 100,634 facilities across Seoul; the actual collected amount, after applying the reductions and subtracting unpaid fees, was approximately KRW 86 billion. Statistics since 2006 (when data first became available) show more than 95% of applicable facilities have paid the fees that have been levied against them, and that the monetary total for impact fees in Seoul is on the rise.

<Figure 1> Collection of the Congestion Impact Fee in Seoul
Source: Internal data from the City of Seoul.

As seen above, Seoul levies congestion impact fees based on facility type and total area. Consequently, as shown in Table 4, the number of levies against large facilities (which have a high impact) is relatively low but the fees collected from these facilities account for a large portion of the total. As of 2013, the number of total impact fees levied on facilities 10,000 m² or larger represents only 1.5% of the total, but by monetary amount these facilities pay approximately KRW 48.4 billion, about 45.9% of the total amount paid by all facilities.
 
<Table 4> Congestion Impact Fees for Facilities in Seoul (2013)

Source: The Korea Transport Institute (2014), Study on Improving the Congestion Coefficient.
 
Incentive for Companies to Participate in the Transportation Demand Management Program
The congestion impact fee can be burdensome for companies. However, participation in the Transportation Demand Management Program allows them to benefit from the incentives provided, and the number of program participants has gradually increased. As of 2013, 22% of the program target facilities were involved.
 
<Figure 2> Participation of Companies in the Transportation Demand Management Program (by Year)
(Units: No. of Companies, %)

Participating Companies | Participation Rate
Source: Internal data from the City of Seoul.
 

Doubts about the Effect of the Impact Fee (Need for the Unit Impact Fee to Be More Realistic)

The congestion impact fee, adopted in 1990, is now over 20 years old and constitutes a major transportation policy in Seoul. However, questions have recently been raised about its effectiveness. Despite rising prices, the unit congestion impact fee has been fixed at the same level for 22 years. The total impact fees account for only 1% of all costs arising from congestion in Seoul. As of 2011, actual participation rate in the transportation demand management system for companies was barely 18%. One of the reasons, according to experts, is that impact fees have been kept at the same level for 2 decades while the size and population of the city has continued to grow and the number of registered vehicles more than quintupled. The City of Seoul is now working to revise the relevant ordinances and give the fees greater influence by applying pressure on companies that do not participate in the transportation demand management program and providing attractive incentives to those that do.
 
A Need to Improve the System and Use the Fee to Invest in Transportation
Seoul collects some KRW 100 billion annually through the congestion impact fee system, but this is insignificant to effectively reduce traffic volumes. For example, subway construction costs KRW 120 – 150 billion per km in Seoul; the impact fees presently collected cannot even finance a kilometer of subway construction. Up to 30% of the fee is granted to local districts, but since there is presently no requirement that the grant be used for transportation programs, relevant regulations are needed.
 
A Need for More Specific Congestion Coefficients
The congestion impact fee system has long attempted to differentiate the congestion coefficients by city size and facility to make them more realistic. However, the fees are unnecessarily levied on some areas where congestion is insignificant because the characteristics or specific conditions of the locations have not been taken into account. On the other hand, it has been suggested that the impact fee has little effect on heavily congested areas. The congestion coefficients need to be differentiated in multiple steps and reflect the level of congestion and the unique characteristics of the region. For instance, upward adjustment of the congestion coefficient must remain within the 100% range of the coefficient set out in the Urban Traffic Readjustment Promotion Act; this needs to be revised so that upward adjustment can go beyond 100% for those facilities that significantly add to traffic congestion of an area. For those areas where public transit is inadequate, the coefficient should be lowered, even if the congestion increases due to certain facilities.

The Seoul Development Institute, “Plans for Transportation Demand Management to Reduce the Use of Vehicles in Seoul”, 2007.
City of Seoul Ordinance, The Standards & Reduction Rate for the Traffic Reduction Program.
Seoul Statistics (http://stat.seoul.go.kr/).
Ministry of Strategy & Finance, Comprehensive Report on Management of Fees, 2013.
Hwang Sun-yeon, Study on Improvement of Criteria for and Calculation of the Congestion Impact Fee, 2011.The Korea Transport Institute, Study on Improving the Congestion Coefficient, 2014.