2024-01-21 14:42:52
Promotion of reorganization for the first time in 24 years
▲ Highest inheritance tax rate in OECD member countries – Page 18 Discussions on inheritance tax reform, with conflicting views on ‘strengthening the inheritance of wealth’ and ‘punitive double taxation’, have surfaced for the first time in 24 years. The Samsung owner family, including Hong Ra-hee, former director of Leeum, Samsung Museum of Art, recently disposed of shares in affiliates worth 2.7 trillion won to raise funds for inheritance tax, and President Yoon Seok-yeol added fire by saying, “The current inheritance tax is an excessive surcharge.” The need for reform has been consistently raised as the scope of inheritance tax has been expanded to include the middle class due to rising asset prices, and the need to cough up more than half of inherited assets has become an obstacle to corporate management.
However, as the perception that ‘inheritance tax = tax on the rich’ still persists, and that social consensus is important, there are many who believe that it is unclear whether the discussion will gain momentum ahead of the general election in April.
On the 17th, in response to a question from an economics YouTuber who pointed out the ‘Korea Discount’ problem at a financial sector people’s livelihood debate, President Yoon made the inheritance tax issue public by saying, “The Korea Discount can be solved only by reforming the excessive tax system that hinders the development of the stock market.” . As the repercussions grew, Seong Tae-yoon, head of policy at the Presidential Office, said the next day, “I’m not saying we’re going to do anything right away.” Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok also said on the 21st, “There is a problem with our country’s high inheritance tax rate, but there is also a position that we must be very cautious. “As there are pros and cons, we will proceed with caution,” he said.
The Ministry of Strategy and Finance established a tax reform promotion group early last year and has been discussing ways to reduce the inheritance tax burden. The basic framework is to convert the current ‘heritage tax’ method, which taxes inherited property, to the ‘heritage acquisition tax’ method, which taxes inherited property. For example, if four children inherit 10 billion won, taxes must be levied on the 10 billion won and divided among the four. However, in the case of inheritance tax, the burden is lowered because each of the four children is taxed on the 2.5 billion won they inherited.
In order for the government to push forward with inheritance tax reform in earnest, it must overcome at least ‘three mountains’. The first step is to erase concerns regarding a decrease in tax revenue amid the recent flood of tax reduction policies, such as the abolition of financial investment income taxes. As a result of an analysis conducted by the National Assembly Budget Office at the request of Rep. Jang Hye-young of the Justice Party, it was analyzed that if the inheritance acquisition tax method is introduced, tax revenue will decrease from 637.9 billion won to 1.2582 trillion won per year depending on the number of heirs (2 to 4). It was estimated that if the spousal deduction, which is currently 500 million to 3 billion won, is doubled, tax revenue will decrease by an additional 636.4 billion won. Kim Woo-cheol, a professor of taxation at the University of Seoul, said, “If several tax systems are simultaneously reformed to reduce tax revenues, a systematic decrease in tax revenues is a concern,” adding, “We need to discuss complementary measures.”
The consistent logic of the government and business circles is that the current system is ‘punitive double taxation’ and is by far the highest among major developed countries. Among member countries of the Organization for Economic Co-operation and Development (OECD), the highest nominal tax rate is 55% in Japan and 50% in Korea. However, there is a surcharge (20% of tax) on major shareholder stocks, so the actual highest tax rate is 60%. The business community argues that the current inheritance tax is double taxation, saying, “A tax is levied once more when property that has been taxed once is passed down to the next generation.” They also say that excessive tax rates make it difficult to secure stable shares during the management succession process, leading to damage to corporate competitiveness. President Yoon also said, “Major shareholders will have to pay a huge amount of inheritance tax if the stock price rises too much. “The company has to be sold somewhere else, and the technology is difficult to pass on,” he said.
There is also a counterargument that when linked to income tax, our country’s tax burden is at the bottom among OECD member countries. Baek Kyeong-yeop, head of the Tax Analysis Division of the National Assembly Budget Office, said, “Among countries in the OECD that operate both income tax and inheritance tax, the country with the highest national burden ratio (income and inheritance tax payment relative to gross domestic product (GDP)) was Denmark at 46.9%, and Korea at 29.9%. “In terms of percentage, it ranks 18th, lower than the average of 35.8% among the 22 countries analyzed.”
Above all, the view of ‘strengthening the inheritance of wealth’ and ‘lowering taxes for the rich’ is a highly volatile political obstacle that might destroy the inheritance tax reform itself. It is for the same reason that the government put social consensus as a prerequisite. Seokjin Woo, a professor of economics at Myongji University, said, “50% of apartment owners in Seoul will have to pay inheritance tax. “It is right to reform to be more lenient on inheritance like developed countries,” he said. “Inheritance tax on conglomerates should be viewed differently. “There is no evidence that inheritance tax reduces investment or prevents economic growth,” he said.
Sejong Reporter Lee Young-jun
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