Government to Begin Reviewing Inheritance Tax System Reform Next Month

Deputy Prime Minister for Economy Hong Nam-ki is attending the National Assembly's Public Planning and Finance Committee's audit of the Ministry of Economy and Finance held at the National Assembly on the 6th, responding to lawmakers' questions. Photo by Yoon Dong-ju doso7@

[Sejong=Asia Economy Reporter Kwon Haeyoung] The government will begin full-scale discussions next month on reforming South Korea's inheritance tax system, which is the second highest among OECD countries. However, since opinions on the direction of reform are divided, it is unlikely that fundamental changes such as the introduction of an inheritance acquisition tax will be made in a short period.

According to the government on the 17th, the Ministry of Economy and Finance plans to discuss related matters at the Tax Subcommittee of the National Assembly's Planning and Finance Committee once the research project on inheritance tax reform is completed by the end of this month. The Tax Subcommittee is expected to start in early to mid-November.

The government anticipates that due to the tight schedule for National Assembly discussions, it will be difficult to hold public hearings or other general opinion-gathering procedures. Since the ruling and opposition parties have not clearly decided their party positions and opinions among lawmakers are divided, it is uncertain whether the National Assembly discussions can be concluded within this year.

A government official said, "Reforming the inheritance tax system must be based on social consensus and agreement," adding, "Since this is an issue with neither only support nor only opposition, we have no choice but to approach it cautiously and comprehensively."

South Korea's top inheritance tax rate is 50% nominally, the second highest among OECD countries after Japan (55%). This rate exceeds the highest income tax rate (42%) by nearly 10 percentage points. In particular, when transferring shares held by a major shareholder, the value is assessed 20% higher than ordinary shares, considering the management premium.

The inheritance tax that the family of the late Lee Kun-hee, former chairman of Samsung Group who passed away last year, must pay exceeds 12 trillion won, which is more than half of the total inheritance, with 11 trillion won of that amount assessed on shares of affiliated companies. Considering the recent sharp rise in real estate prices, there are claims that the number of inheritance tax payers may increase in the future. This is why there are criticisms that the inheritance tax rate is excessively high and places a heavy burden on businesses.

However, it is also pointed out that the actual number of inheritance tax payers is very small, and those who pay receive various deductions, resulting in an effective tax rate much lower than the nominal rate. According to the National Tax Service's occasional disclosure of national tax statistics, about 3.3% of the deceased last year, or 10,181 people, were subject to inheritance tax.

Even if subject to payment, considering benefits such as the blanket deduction (500 million won) and spouse deduction (at least 500 million won), typically no tax is paid on inheritances up to 1 billion won. If the sum of the basic deduction (200 million won) and other personal deductions such as child deductions exceeds 500 million won, this amount can be applied instead of the blanket deduction, allowing for deductions exceeding 1 billion won. Additionally, when small and medium-sized enterprises inherit family businesses, up to 50 billion won can be additionally deducted, and in the case of agricultural inheritance, up to 1.5 billion won is granted as an additional deduction.

Moreover, discussions have become more complicated recently with calls to introduce new tax systems such as inheritance acquisition tax or capital gains tax. The inheritance acquisition tax is levied on the portion of inheritance acquired by an individual heir rather than the entire inherited estate, which has the effect of reducing the tax burden due to the application of progressive tax rates.

Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki stated at the National Assembly Planning and Finance Committee's audit on the 6th that regarding the introduction of the inheritance acquisition tax, "We will review it comprehensively," but since the introduction of the inheritance acquisition tax implies a complete overhaul of the tax system, it is highly likely that this issue will be passed on to the next administration.

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