Korea urged to bring down high inheritance tax rate
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"The burden of inheritance tax on businesses is excessive," said Shim Chung-jin, professor of business administration at Konkuk University. "The country should help companies transition into continuous enterprises."
Shim noted that "many companies are considering whether to continue their business or cease operations as the timing for family succession and inheritance has become crucial."
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“The burden of inheritance tax on businesses is excessive,” said Shim Chung-jin, professor of business administration at Konkuk University. “The country should help companies transition into continuous enterprises.”
The government has been holding a series of discussions and public hearings on corporate value enhancement measures since early this month to review what to incorporate into policy.
Shim noted that ”many companies are considering whether to continue their business or cease operations as the timing for family succession and inheritance has become crucial.“
He cited the surge in asset prices along with the size of the economy as reasons to reform the inheritance tax system in the country.
Korea‘s nominal gross domestic product (GDP) grew 3.6 times from 676 trillion won in 2000 to 2,401 trillion won last year. The consumer price index also jumped by 82.7 percent between January 2000 and May 2024.
However, the inheritance tax system has remained unchanged since the tax law was revised at the end of 1999, with the maximum tax rate maintained at 50 percent for amounts exceeding 3 billion won.
His reform plan includes key points such as 6 percent for amounts up to 300 million won, 12 percent for amounts over 300 million won up to 1.5 billion won, 18 percent for amounts over 1.5 billion won up to 3 billion won, 24 percent for amounts over 3 billion won up to 9 billion won, and 30 percent for amounts over 9 billion won.
He argued that if the current inheritance tax rate is maintained, the 20 percent premium assessment for major shareholders should be abolished.
If the maximum rate is lowered to 30 percent, he said that the premium assessment should be applied at the level of only 5-10 percent.
Shim also suggested that family business succession deductions should be expanded to motivate small and medium-sized enterprises (SMEs) to grow into mid-sized and large enterprises.
Currently, only companies with sales of less than 500 billion won are eligible for family business succession deductions, which he believes needs to be adjusted to 1 trillion won. He also suggested raising the deduction limit.
The public hearing also discussed corporate and income tax reform plans.
Hong Byung-jin, an associate research fellow at KIPF, suggested that direct tax support for corporations and investors could be considered to resolve the so-called Korea discount issue.
His proposed tax support measures for corporations included full tax credits for dividend amounts, tax credits for dividend increases, and adding dividends to the items that are subject to the rebate of the Special Taxation for Promoting Investment, Co-existence, and Cooperation.
For shareholder support, Hong suggested complete separate taxation on dividend income as well as low-rate separate taxation on all dividends and dividend increases from value-up companies.
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