"To Increase Corporate Value, Inheritance Tax Should Be Reduced and Dividend Income Disadvantages Eliminated"

At the discussion forum titled "Exploring Tax Improvement Measures for Corporate Value-Up," held on the 3rd at the Korea Press Center and hosted by KEF Korea Employers Federation (KEF), Son Kyung-sik, Chairman of KEF, is delivering a greeting. Photo by Huh Young-han younghan@

To address Korea's chronic undervaluation problem, there have been calls to lower inheritance tax rates and eliminate disadvantages on dividend income. It is pointed out that many companies either do not want to grow due to high inheritance tax rates or cannot increase their dividend payout ratios because of corporate tax burdens.

On the 3rd, Professor Park Sung-wook of Kyung Hee University's Department of Accounting and Taxation stated at a forum titled “Exploring Tax Reform Measures for Corporate Value-Up,” hosted by the Korea Employers Federation at the Press Center in Jung-gu, Seoul, “Among various measures for corporate value-up, I will focus on tax support to examine problems and propose improvements.”

Professor Park analyzed that the highest inheritance tax rate among OECD countries needs to be revised for value-up. Because of the high inheritance tax rate, heirs must sell shares or take out stock-backed loans to inherit companies, which destabilizes governance structures and leads to a decline in corporate value. He also criticized that some business owners do not want corporate value to increase due to the inheritance tax burden.

In particular, Professor Park said, “When inheriting about 15 billion KRW, the effective tax rate is 41%, the highest in the world,” and argued, “It is appropriate to raise the first tax bracket for inheritance tax to 1.5 billion KRW.” He added, “The scope of companies eligible for business succession tax benefits should also be expanded, but if social consensus is difficult, it is necessary to at least expand the deduction range and increase limits for companies targeted for value-up.”

Advice was also given to revise related tax systems to expand dividends, which are essential for boosting stock prices. Korea’s dividend payout ratio is about 20% of profits, roughly half that of major countries. The cause was attributed to the “tax incentives for investment and win-win cooperation,” which impose an additional 20% corporate tax on undistributed income. Since dividend income is not deducted when calculating undistributed income, companies have to pay more tax the more dividends they distribute. Professor Park believes that to increase dividends and raise stock prices, this tax incentive should be abolished.

Furthermore, he proposed providing corporate tax credits proportional to the increase in dividends for companies leading shareholder returns. Professor Park said, “Differentiated benefits should be given to large and small businesses,” adding, “By encouraging dividends, corporate profits are well distributed to investors, increasing investment returns, which raises corporate value and leads capital markets to invest more in dividend-paying companies.” He said, “This will create a virtuous cycle that positively impacts the overall economy.”

Son Kyung-sik, chairman of the Korea Employers Federation, also joined in emphasizing the urgent need for tax reform, saying, “The inheritance tax rate is 60% when passing assets to children, the highest among OECD countries.” Son explained, “There is growing recognition that high inheritance tax is a major factor in Korea Discount, where our stock market is undervalued,” and added, “The inheritance tax brackets, which have been maintained for over 20 years, should be rationally revised to reflect current scale and inflation to ease the tax burden on the middle class.”

Son continued, “Corporate tax systems also need improvement,” appealing, “With the current high corporate tax rates, we cannot compete with advanced countries.” He emphasized, “The recent significant rise in U.S. corporate stock prices was possible due to active government support,” and stressed, “We must lower corporate tax rates and expand tax resources for advanced sectors so that our companies do not compete under less favorable tax conditions than advanced countries.”

The government also expressed openness to reviewing some tax reform measures. Jo Man-hee, Director of Income and Corporate Tax Policy, responded, “It is true that excessive inheritance tax burdens make efforts to enhance major shareholders’ corporate value burdensome,” and said, “Separate taxation on dividend income for value-up active corporate shareholders, corporate tax credits, abolition of inheritance tax surcharge valuation, and easing of business succession burdens for value-up companies can be considered.”

However, Director Jo added, “The direction of tax support for value-up should be comprehensively designed considering effectiveness, tax convenience, and revenue aspects,” and noted, “There are diverse social views on inheritance tax relief.”

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