KB News Desk
The ruling People Power Party (PPP) is pushing for an inheritance tax revision whereby the rate and taxable amount are set on gains from trading inherited assets, instead of their value at the time of the owner’s death.
Advancing the move is growing frustration among corporate entities and individuals without tens of billions of won to pay the tax at a maximum rate of over 50 percent.
Korea’s nominal inheritance tax rate is 50 percent, the highest among OECD countries, second only to Japan’s 55 percent. The tax rate soars to the global highest of nearly 60 percent when a 20 percent surtax is included on the largest shareholders of major firms passing down their stocks to family members. The OECD average is 25 percent.
Many end up abandoning their family businesses at the expense of the otherwise strong growth potential of small- and mid-sized enterprises.
Korea is one of the few advanced economies without a grace period for inheritors to wind down a family business, unlike Canada, Australia, Sweden and New Zealand.
The revision is led by Rep. Park Soo-young of the PPP, a member of the National Assembly Strategy and Finance Committee.
He plans to refine the specifics of the draft upon review of recommendations of the National Assembly Legislation Counsel Office to ensure compatibility with existing laws.
The lawmaker says the revision into a capital gains tax will be applied to profits from trading inherited land, buildings and stocks after a holding period of at least one year, irrespective of the asset holder’s date of death.
Inheritors of family businesses, in his view, often lack the cash to pay the taxes, a cause of an unfortunate discontinuation of what would have been flourishing businesses for the good of the economy.
“Many forgo their family businesses, overwhelmed by high taxes. We will adopt a capital gains tax approach to make it more reasonable, a long overdue yet necessary step to prevent the closure of healthy businesses,” he said.
Six economic organizations representing the interests of businesses issued a joint statement, June 27, emphasizing that Korea’s world’s-highest, business-crippling inheritance tax rates fall far short of global standards.
“Fifteen OECD member countries have no inheritance tax at all, and over half of the remaining 23 allow exemptions or significantly reduce rates for immediate surviving family members. Korea’s system should be drastically overhauled,” it said.
Whether and by how much the government will revise the decades-long tax remains to be seen.
The Ministry of Economy and Finance plans to include inheritance tax reform in the annual tax revision plan scheduled later this month.
Korea’s inheritance and gift tax rates remain unrevised since 1999.
