"Corporate Dividends Should Also Be Included in the Win-Win Cooperation Formula"…KCCI Proposes Tax System Improvements to Government

The Korea Employers Federation (KEF) has proposed tax system improvements to the government aimed at enhancing the global competitiveness of South Korea's tax laws. They demand a reorganization of the inheritance tax brackets, which have remained fixed for over 20 years, a shift to a system where inheritance tax is levied only on the amount each individual inherits, and a revision of the investment and win-win cooperation promotion tax system, which is based on unrealistic criteria.

KEF announced on the 12th that it submitted the "Proposal for Tax System Improvement to Enhance Global Competitiveness" to the Ministry of Economy and Finance on the 11th. First, regarding inheritance tax, KEF pointed out the need to update the inheritance and gift tax brackets, which have been fixed for over 20 years without considering changes in South Korea’s economic scale or inflation. They argue that since the economy and asset values have increased over the past 20 years, the tax bracket amounts and the uniform deduction limits should be raised accordingly.

Secondly, KEF demands a change in the inheritance tax method to an inheritance acquisition tax system, where tax is paid only on the amount of inheritance received. Currently, the inheritance tax is levied on the entire estate of the deceased (predecessor), not on the individual amounts inherited by each heir. KEF pointed out that this method violates the principle of fair taxation and does not align with global standards.

Lastly, KEF claims that the currently operating investment and win-win cooperation promotion tax system is not suitable for the current reality. This tax system applies a 20% tax rate on the shortfall amount if a company uses less than a certain standard of its current income for investment, wage increases, or win-win cooperation. However, KEF pointed out that the system only recognizes wage increases for workers earning less than 80 million KRW in total annual salary and reflects this in the tax calculation, while dividends paid by companies have been excluded from the calculation since 2018. KEF stated, "It is problematic that companies subject to taxation cannot be recognized for income recirculation even if they raise workers’ wages in line with the legislative intent," and added, "The criteria for recognizing wage increases should be raised, and dividends should also be included in the tax calculation."

In addition, KEF presented other proposals to stimulate investment, including ▲ lowering the top inheritance tax rate and abolishing the premium valuation on major shareholder stocks ▲ easing the requirements for business succession deduction ▲ lowering the top corporate tax rate ▲ expanding tax support for R&D and other areas ▲ lowering the minimum tax rate.

Lee Dong-geun, KEF’s full-time vice chairman, said, "Continuous policy signals to strengthen tax competitiveness and improve the investment environment are necessary to accelerate domestic investment, revive the economy, and support national finances," and added, "We hope the government and the National Assembly will accelerate tax reforms to rationalize the tax system and promote investment."

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