The Call for Reform in South Korea's Inheritance Tax System Amidst Rising Concerns
With significant inheritances expected to occur over the next 10 to 30 years due to the aging of baby boomers, there have been calls for an urgent reform of the inheritance tax system, which has been in place since 1999 when the Inheritance Tax Rate was raised from 45% for the first 5 billion won to 50% for the first 3 billion won.
Currently, out of 38 OECD countries, 24 countries impose inheritance taxes, and four countries tax the total amount of inheritance left by the decedent (estate tax, inheritance tax, etc.). Korea's inheritance and gift tax is 2.4% of total taxes, six times the OECD average of 0.4%.
In fact, global companies are not created in the present, but have to go through many generations, and Korea's inheritance tax system is backward and burdensome compared to major countries, making it difficult for such global companies to be perpetuated.
The top rate of inheritance tax in Korea is 50%, which is significantly higher than the OECD average of 15%, and while Germany has an average of 11,000 corporate inheritance deductions(기업공제제도) per year, Korea has only a little over 100. This is because it is not only difficult to prepare the requirements in advance, but if the requirements are violated even after the fact, the deducted inheritance tax must be paid with interest, and it is because of the limitations of the corporate inheritance deduction system that Korean businessmen do not utilize it even though they know that there is a deduction system. In particular, when shares are inherited or gifted from the largest shareholder, the effective tax rate of up to 60% may be applied because the valuation is taxed by adding a 20% surcharge to the valuation, making it the highest tax rate among OECD countries.
There is a problem that cutting the inheritance tax will make it difficult to redistribute wealth, but the current inheritance tax is borne by people who own only one apartment due to the explosion of apartment prices, and the inheritance tax revenue itself is high, which is excessive beyond wealth redistribution. The United States, which imposes inheritance tax in the form of estate tax like Korea, has a large basic deduction amounting to 17 billion won, and the United Kingdom also has a large deduction amount in the single tax rate.
In addition, there are opinions that the inheritance tax rate should be converted to a differential tax rate according to the relationship between the decedent and the heir, and 18 of the 24 OECD countries that impose inheritance tax exempt immediate relatives from inheritance tax or apply a differential tax rate, so there are opinions that we should simplify the personal deduction system by raising the limit of various inheritance deductions or lump-sum deductions.
Conclusion: Balancing Fairness and Economic Growth South Korea faces the challenge of reforming its inheritance tax system to balance economic growth and fair wealth distribution. It's a delicate equilibrium, requiring thoughtful consideration and strategic planning.
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