"South Korea's Inheritance Tax Burden Increased 7.1 Times Over 19 Years... Installment Payment Period Should Be Extended"

[Asia Economy Reporter Dongwoo Lee] Despite the improvement in income levels, it has been argued that South Korea's inheritance tax brackets and rates have remained at the 2000 levels, necessitating system reforms.

The Korea Economic Research Institute announced on the 17th that over the past 19 years (2000?2019), while income levels increased 2.7 times, the inheritance tax brackets and rates were never adjusted. As a result, the number of decedents subject to inheritance tax increased 6.9 times, and the reported tax amount surged 7.1 times, significantly increasing the inheritance tax burden.

Last year, the reported inheritance tax amount was 3.6723 trillion KRW, a 7.1-fold increase compared to 513.7 billion KRW in 2000. Regarding this, the Korea Economic Research Institute explained that from 2000 to 2019, during which income levels (per capita GNI) grew about 2.7 times, the taxation system?including tax brackets, rates, and deduction scales?remained at past levels, greatly increasing the inheritance tax burden.

If the existing taxation system is maintained without considering the improvement in citizens' income levels, the number of taxpayers naturally increases, resulting in a tax increase effect. In fact, from 2000 to 2019, when there were no tax system changes, the number of decedents subject to inheritance tax rose from 1,389 to 9,555, a 6.9-fold increase. During the same period, the total taxable inherited property value increased from 3.4134 trillion KRW to 21.538 trillion KRW, a 6.3-fold increase, and the taxable base rose from 1.8653 trillion KRW to 12.2619 trillion KRW, a 6.6-fold increase.

While South Korea has maintained its inheritance tax rates since 2000, major OECD countries have gradually reduced their inheritance tax burdens. As a result, South Korea's top inheritance tax rate is the second highest among OECD countries, following Japan. The Korea Economic Research Institute pointed out that if lowering the inheritance tax rate is difficult, it is necessary to extend the installment payment period to reduce taxpayers' burdens.

Since inheritance tax is imposed on unrealized gains, taxpayers face the burden of having to urgently sell part of the inherited property to pay the tax. Unlike other taxes, the tax law allows installment payments only for inheritance tax for this reason. Japan permits installment payments for up to 20 years depending on the proportion of illiquid real estate in the inherited property, but South Korea limits the installment payment period for general inheritance, excluding business succession, to 5 years, imposing a heavy burden on converting inherited property into cash.

Inheritance tax relies heavily on a small number of high-value taxpayers, resulting in high annual tax revenue volatility. Since 2000, the average annual fluctuation rate of inheritance tax revenue was 13.6%, more than twice that of total national tax revenue (6.6%).

The Korea Economic Research Institute explained that extending the inheritance tax installment payment period would not only reduce taxpayers' burdens but also help tax authorities secure revenue stability. For example, if an inheritance tax amount of 10 trillion KRW is paid in installments over 10 years, the first year's tax revenue fluctuation rate would be 28.1%, significantly lower than lump-sum payment (312.5%) and the current 5-year installment payment (50.0%).

Choo Kwang-ho, Head of Economic Policy at the Korea Economic Research Institute, stated, "Extending the inheritance tax installment payment period is an effective means to reduce taxpayers' cash procurement burdens without decreasing tax revenue," adding, "Since the principal and interest of the tax amount are paid over the long term, it is expected to have a positive effect on tax revenue stability." He further said, "It is time to start inheritance tax system reforms that have been postponed for over 20 years, beginning with extending the installment payment period," and added, "We should also join the global trend of lowering or abolishing inheritance tax."

This content was produced with the assistance of AI translation services.