Art Inheritance Tax Payment in Kind Rejected by Ruling Party... Could Not Even Bring Up Comprehensive Real Estate Tax

2021 Tax Reform Bill

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is briefing on the 2021 tax law amendment at the briefing room of the Government Seoul Office Building on Sejong-daero, Seoul, on the afternoon of the 23rd. July 26, 2021. Photo by Yonhap News

[Asia Economy Reporters Son Seon-hee (Sejong), Jang Se-hee] Some parts of the last tax law amendment bill during the Moon Jae-in administration were reversed just before the announcement due to pressure from ruling party lawmakers. Real estate-related tax laws, including the highly anticipated comprehensive real estate tax, were not included in this amendment as discussions were led by the ruling party. Although tax support for companies was strengthened, it is expected to be difficult to avoid criticism that tax policy is being swayed by political logic.

According to the government on the 27th, related ministries such as the Ministry of Economy and Finance, Ministry of Culture, Sports and Tourism, and the National Tax Service had been pushing for a plan to allow payment of inheritance tax in kind with artworks for inheritances occurring after January 2, 2023, but the plan was withdrawn at the last minute due to opposition from lawmakers belonging to the Democratic Party of Korea. It was reported that they strongly opposed the measure, arguing that paying inheritance tax with artworks amounted to a 'tax cut for the wealthy.' The government's draft of the '2021 Tax Law Amendment' included provisions for payment of inheritance tax in kind with artworks, but these were omitted from the final version announced the day before. It is highly unusual for the government to reverse the content of a pre-briefing conducted to finalize the details and impose a news embargo. The tax law amendment bill is to be submitted to the regular National Assembly session in September for discussion, but it failed to even pass the parliamentary threshold due to opposition from the ruling party.

Under the current inheritance tax law, only real estate and securities among inherited assets are allowed to be paid in kind instead of cash. However, in March of last year, the Kansong Art and Culture Foundation, which was struggling financially, auctioned off a 'national treasure' Buddha statue collected during the Japanese colonial period to raise inheritance tax funds, which sparked calls mainly from the cultural community to allow payment of inheritance tax in kind with artworks and cultural assets. Additionally, following the death of Samsung Electronics Chairman Lee Kun-hee in October last year, discussions on the payment of inheritance tax in kind with artworks accelerated.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, explained the background of the withdrawal of the artwork inheritance tax payment system by saying, "During the ruling party-government consultation process, many opinions were expressed that 'while the intention is agreed upon, in-depth evaluation and discussion are necessary,'" and added, "We agreed to discuss it together when the tax law amendment bill is submitted to the National Assembly." He further stated, "If necessary, it will be proposed as a legislative bill by lawmakers."

However, the possibility of re-promotion during the regular National Assembly session is low. On the same day, Democratic Party lawmaker Yang Kyung-sook proposed amendments to the State Property Act, Inheritance and Gift Tax Act, and Local Tax Act to improve the payment of inheritance and property taxes in kind, but did not include expanding the scope of payment in kind to artworks. Instead, the proposal considered the act of paying in kind with existing real estate or securities as a 'transfer,' requiring additional payment of capital gains tax when real estate is paid in kind and financial income tax when securities are paid in kind.

The comprehensive real estate tax is also out of the government's hands. Since it is under discussion in the National Assembly, the comprehensive real estate tax law was excluded from the government's reform plan. The ruling party, which has only set the broad direction of 'taxing the top 2%,' plans to discuss it again at the August extraordinary session of the National Assembly.

Meanwhile, Deputy Prime Minister Hong strongly criticized claims that the current tax reform plan is a tax cut for large corporations, saying, "That is not true." Through his social media on the same day, he emphasized that "the next 2 to 3 years are a 'golden time' to secure competitiveness in strategic technology sectors," and asserted that "benefits will be distributed evenly among large corporations, small and medium-sized enterprises, and mid-sized companies." He also stressed that "the government and companies must become a 'one team.'"

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