Finance Minister signals inheritance, gift tax reforms

[Image source: Gettyimagesbank]

South Korean Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok hinted at the government’s plans to revamp the nation’s inheritance and gift tax laws in 2024, as well as suggesting that the current inheritance tax system is impacting corporate governance in Korean companies.

In a television interview on Sunday, Choi mentioned that Korea’s “inheritance tax rate is high compared to other advanced countries.” He also presented the government’s careful approach to suggested tax reforms, under which it considers social consensus as well as weighing their pros and cons.

Korea’s highest inheritance and gift tax rate is 50 percent, the second highest among member countries of the Organisation for Economic Co-operation and Development, after Japan with 55 percent. This rate is significantly higher than that of the United States (40 percent), Germany (30 percent), and even the OECD average (15 percent). In terms of the effective tax rate, Korea’s rate is the highest among OECD members. While Japan evaluates inherited assets based on data from mandatory filings by corporates, Korea assesses them at market value, imposing a surcharge for the largest shareholders of large corporations of up to 60 percent.

The suggested inheritance tax reforms are gaining momentum for the first time in 24 years since 2000, following a recent remark by President Yoon Suk Yeol, who stated that he believes excessive inheritance tax is the cause of the “Korea discount.”

Regarding the government’s plan to abolish the tax on income from financial investment, criticized as a “tax reduction for the rich,” Choi clarified that it is a “tax reduction for more than 20 million investors.” He pointed out that there are 14 million equity investors and 20 million investors, including those investing via fund products.

In response to concerns about a shortfall in tax revenue following consecutive tax reductions, Choi emphasized the government’s move as “efforts to create a cyclical structure that expands the tax base via economic revitalization,” and added that tax deregulations for the capital market do not account for a large part of government revenue.